Regional banks' shares received a modest boost Wednesday as an analyst was optimistic loan losses would begin to shrink in 2010.
However, not everyone is as upbeat about banks. Moody's Investors Service said the broader U.S. banking sector has recognized just 40 percent of the actual losses it will record between 2008 and 2010. That has kept stock gains in check.
Credit Suisse analyst Craig Siegenthaler said he expects provisions to cover failed loans at the banks will peak in the fourth quarter. Losses on nearly all types of loans have hampered the sector's profitability since 2007 when the housing market started to collapse.
Moody's forecasts U.S. banks will remain unprofitable through 2010 as they still struggle with losses.
In a research note, Credit Suisse's Siegenthaler said loan delinquencies _ an early sign of expected defaults _ and the real estate market are improving. That will help cut down on defaults and minimize losses on loans that actually fail, he said.
Banks also won't likely have to raise any new capital to help offset the last push of loss provisioning, Siegenthaler wrote.
He now rates the regional banking sector "Overweight." He also upgraded SunTrust Banks Inc. to "Outperform" from "Neutral" and BB&T Corp. to "Neutral" from "Underperform."
Shares of SunTrust rose 30 cents to $23.50 in late morning trading. BB&T shares jumped 81 cents, or 3.2 percent, to $26.51.
Once the banks start to cut back on provisioning and loan losses dwindle, their share prices are likely to return to more normalized levels, Siegenthaler said. That means valuation levels rising to between 11 and 13 times future earnings-per-share estimates by the middle of 2012 from a current 6.6 times, he said.
Stocks of regional banks could rise by as much as 75 percent over the next three years and 25 percent in 2010, Siegenthaler wrote in the note.