National City Corp., Huntington Bancshares Inc. and Regions Financial Corp. led regional bank stocks higher in New York trading after Wells Fargo & Co.'s counterbid for Wachovia Corp.
National City, Ohio's biggest bank, rose 37 cents, or 12 percent, to $3.51 at 4:01 p.m. in New York Stock Exchange composite trading, after surging as much as 33 percent. Columbus-based Huntington climbed $1.48, or 16 percent, to $10.72. Birmingham, Alabama-based Regions rose 14 percent and Philadelphia-based Sovereign Bancorp Inc. advanced 11 percent. Stocks were also helped by a tax change that may have aided Wells Fargo's bid and made consolidation more attractive.
"Maybe there's a realization that regional banks are not dead and their stocks are worth more than $1," said Chris Marinac, an analyst at FIG Partners LLC in Atlanta. " We use Wachovia as our shining example."
Wells Fargo, based in San Francisco, agreed to buy Wachovia for about $15.1 billion, trumping an earlier bid by New York- based Citigroup Inc. and locking the two companies in a battle for the assets of the troubled Charlotte, North Carolina-based lender. The Internal Revenue Service issued a note Tuesday that makes Wachovia's loan losses more valuable as tax deductions. The regional lenders were among the biggest gainers in the 24-company KBW Bank Index, which rose 4.8 percent.
Regional banks were driven higher on speculation about mergers and acquisitions and today's congressional authorization for Treasury Secretary Henry Paulson to spend $700 billion buying distressed mortgage assets from financial companies. The Standard & Poor's 500 Index had its biggest drop since 1987 on Sept. 29 when the House of Representatives rejected the original bailout package.
"More favorable tax treatment for bank acquisitions has the potential to boost bank consolidation activity significantly," said analysts Jeff Harte and Devin Ryan at Sandler O'Neill & Partners LP in a note today.
The IRS pronouncement, "in effect, allows Wells Fargo to deduct, without limitation, the loan losses and bad debt deductions that Wachovia sustains following the acquisition," said Robert Willens, a certified public accountant who analyzes how accounting and tax rules affect Wall Street. That's a change from more stringent limits, he said.
"It's possible that the cost of the deal to Wells will be entirely offset with tax savings resulting from the relaxation of this rule," he said.
National City and SunTrust Banks Inc., Georgia's largest lender, may be takeover targets for national banks seeking to add to their presence in the Southeast and Midwest, Marinac said.
Regional bank stocks have been crushed by unpaid mortgages and losses tied to stakes in Fannie Mae and Freddie Mac. National City traded at about 15 cents for every dollar of shareholders equity, up from 9 cents earlier this week, according to Bloomberg data. The shares slumped 78 percent this year in part because the bank expanded into Florida in 2006 just before the housing market collapsed.
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