· This S&P Report analyzes the 51 bank and thrift stocks covered by Standard & Poor’s Equity Research, measuring them by what we deem are four key metrics:
- 1. Net interest margin
- 2. Credit quality
- 3. Capital levels
- 4. Valuation
· S&P also looked at what it believes was a comparable recession period-- July 1990-March 1991-- in order to estimate the timing of a recovery for bank stocks, and also to see which stocks recovered quicker—the large diversified banks or the smaller regional players. · By our analysis, only 35% of the banks we cover should benefit from the recent rate cuts in the first quarter of 2008 in terms of net interest margin. · We expect provisions on a cumulative basis to decline 24% in the first quarter of 2008 from elevated fourth-quarter levels, but see provisions for all four quarters of 2008 rising above 2007’s total. · We believe the banks with the highest percentage of allowance (reserves) to nonperforming loans, and thus, best positioned from a credit standpoint to withstand the ongoing credit crisis are: Bank of Hawaii, Westamerica, UnionBanCal, Northern Trust, New York Community Bancorp, BancorpSouth and Cullen/Frost Bankers. · The median level of Tier 1 capital for banks in our coverage universe is 9.1%. In our view, the banks and thrifts with the highest Tier 1 capital ratios (above 10.8%), and with good credit quality (nonperforming loans as a percentage of total loans below 0.40%) are: People’s United Financial, Hudson City Bancorp, New York Community Bancorp and BancorpSouth. · From January 2007 through February 29, 2008, the S&P Diversified Banks and Regional Banks sub-industry indexes were each down about 25%, while the S&P Thrifts & Mortgage Finance sub-industry index is down about 60%. The recent declines in the Diversified Banks and Regional Banks indexes are still well below the roughly 50% declines seen in the 1990-1991 recession from peak to trough. While past performance is not necessarily indicative of future results, we advise investors to be cautious, as we think there may still be further downside. | 
