First Horizon National Corporation (FHN), SunTrust Banks, Inc. (STI), BB&T Corporation (BBT): Banks That Will Benefit From Final Basel III Rules

I see First Horizon National Corporation (NYSE:FHN), SunTrust Banks, Inc. (NYSE:STI), and BB&T Corporation (NYSE:BBT) (non-advanced banks) as the biggest winners of this change in the risk weightings of the banks’ residential exposures. Besides Wells Fargo & Co (NYSE:WFC), these banks have the largest mortgage portfolios, particularly with higher loan-to-values at originations.

Around 3.6% of First Horizon National Corporation (NYSE:FHN)’s Basel I risk weighted assets were mortgages, while SunTrust Banks, Inc. (NYSE:STI)’s mortgage accounted for 3.5% of its risk weighted assets. Then comes Wells Fargo with 3.4%, followed by BB&T at 3.2% of total mortgages as a percentage of Basel I risk weighted assets.

Other performance drivers

For First Horizon National Corporation (NYSE:FHN), the improving credit quality despite pressures from the macro economy will be a defining performance driver. The bank’s credit metrics improved consistently last year. Going forward, you should expect its asset quality to improve further with continuous reserve releases. Besides this, the bank’s cost control strategy will provide some cushion to the bottom line when the top line remains under pressure.

SunTrust Banks, Inc. (NYSE:STI) has made its payment for TARP and completed the equity raise. Now, it is in a position to benefit from the strong demographic growth trends in its footprint. For BB&T, growth lies in the stabilization of the real estate markets in the bank’s geographical footprint. This stabilization could lower provisions and other real estate owned (OREO) expense for the bank.

Conclusion

In short, First Horizon National Corporation (NYSE:FHN), SunTrust Banks, Inc. (NYSE:STI), and BB&T are expected to benefit from the opt-in provision for unrealized gain and losses on the available for sale securities, the change in the risk weights for the residential mortgage exposures, and grandfather of trust preferred securities for banks under $15 billion of assets at the end of the prior year.

The article Banks That Will Benefit From Final Basel III Rules originally appeared on Fool.com.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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