A Tour of Western Banks - Brett Rabatin - Sterne, Agee And Leach, Inc.
March 18, 2010 - The Wall Street Transcript has just published Pacific & Southwest Regional Banks Report offering a timely review of the Banking sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
View Details of This Special Report
Recent Wall Street Transcript Special Reports.
Brett Rabatin comes to Sterne Agee from FTN Midwest Securities Corp., where he was a sell-side Equity Research Analyst for nine years. He covered small- and mid-cap banks located predominately in the West and Texas. Mr. Rabatin's previous experience includes positions at J.C. Bradford, Mercer Capital and Bank Compensation Strategies Group, primarily focusing on transaction advisory, strategic planning and valuation services for financial institutions, as well as analysis of benefit plans and related compliance with banking regulations. He was the number one stock picker in The Wall Street Journal's "Best on the Street" survey for banks and thrifts in 2002. Mr. Rabatin was also recognized as number two overall in the 2004 Forbes/StarMine survey; he was the number two overall earnings estimator in 2004 within the bank/thrift sector. Mr. Rabatin is a Chartered Financial Analyst.
TWST: Where are you focusing your attention these days in the Pacific and Southwest bank space?
Mr. Rabatin: In the Pacific Northwest, it's an area of the country where the economy is still pretty weak. There is a lot of expectation the area may lag into a recovery. So the investment ideas the past few quarters have been predicated more on FDIC-assisted transactions and the potential benefit of those. We're still early in the innings of FDIC receivership and bank failures, particularly in Washington State. But it's a changing environment where investors have to be a little more guarded about how they think these transactions will transpire, particularly as it relates to asset discounts on assisted transactions. At one point, the discounts were good enough to maybe help at least partially fund the transactions. Now they're just a lot cheaper than your typical M And A transaction. We're seeing a few deals, particularly for the core-funded banks, where there is a 4% to 6% discount on assets. I think that level may continue to even get more competitive. We may see some goodwill booked on a few of these. Nevertheless, the opportunity for consolidators and for banks, like Umpqua (UMPQ), which is "neutral", and Washington Federal (WFSL), which is "buy"-rated, is to increase their market share and to get back to more normalized EPS sometime - if not in late 2011, during 2012 - with lower credit costs.
TWST: As you move down to California and into the Southwest, is it the same type of situation there?
Mr. Rabatin: Yes, it's an economy that's not very good right now. California obviously has a big economy, and when it does improve, you can certainly put your bet on the state. You have seen some improved trends in housing, even land lots in better areas, beginning to be sold again. I would say the current trends are not something that gets the bankers excited, but I think there is going to be, particularly as it gets to 2011, hopefully better economic trends. So you can even start now to make investments based more on how some institutions will be able to operate in a better economy. The area of the country that I continue to be the most ebullient on is Texas. Some of the banks there have done very well through the downturn and their prospects are solid. Many of them are even asset sensitive and poised well for higher interest rates. So Texas is probably the area of the country I remain the most comfortable with. And the state has the potential to lead economically in a recovery. There are some very good banks in that state, particularly names like Cullen/Frost (CFR), which is "buy" rated. And the other name I have "buy"rated is Texas Capital (TCBI). It's the only one in the state that's really been growing their loan portfolio, so they've been taking market share from some other larger competitors. There are some very good names that are not inexpensive; their valuations, I think, are fairly robust. But names like Prosperity (PRSP), which is "neutral-rated," and First Financial (FFIN), which is also "neutral"-rated, both those companies have excellent fundamentals.
TWST: Commercial real estate hit later than many of the other problems.
Mr. Rabatin: Yes, correct. The key takeaway that I would say in the past month that is interesting is the C And I lenders. Whether we're talking about a bigger name, like Comerica (CMA), or smaller names in Texas, there is some optimism for C And I lenders. I know it's supposed to be really a lagging indicator, but there is some optimism that we won't see a really bad C And I cycle. Obviously small businesses are not in great shape right now, but I think there is some real optimism out there that if you're a C And I lender and that's your primary lending business, maybe you don't have to go through a really awful credit cycle.
The remainder of this 37 page Pacific & Southwest Regional Banks Report can be immediately viewed by purchasing online.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Special Issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
For Information on subscribing to The Wall Street Transcript, please call 800/246-7673