Will Equity Markets Gain Traction as TARP Begins Implementation?

In recent weeks there has been plenty of talk about the Treasury's TARP initiative, but little progress on its actual implementation. On Friday we got news that PNC Financial (PNC) was the first bank to get a capital infusion from the TARP, and would use much of the cash to help fund its acquisition of troubled banking competitor National City (NCC).

I have previously written highly of PNC stock and this deal only furthers my bullish long-term view on the company. It is paying about $2 per share for a bank that traded at nearly $40 last year and fits its geographical footprint very well. PNC's track record on successful acquisition integration is outstanding.

As with the other strong banks buying weaker ones, loan losses will rise with the deals and that trend will continue for a while, but long term the buyers will only enhance their competitive positions in a marketplace that will have far fewer players overall when the dust settles.

Today we are learning about more banks raising capital through the TARP, Capital One (COF) and SunTrust (STI) among them. Don't be surprised if Capital One makes an acquisition in coming months as well. It has indicated that it is looking at potential deals and has raised money twice in recent weeks.

Hopefully the equity market can begin to gain some traction as some of these plans are not just announced, but more importantly, actually implemented.

Full Disclosure: Peridot was long shares of COF and PNC at the time of writing, but positions may change at any time.

Comments

[Socialism c...:]

No. TARP is going to bring down what little was left that was working!! Do they not understand that you can't solve a problem caused by too much debt...by ramping up more spending and encouraging more lending?? That's what they are after. I listened to Congress questioning Neel and Sheila last Thursday, and came away shaking my head. They just don't get it!!

Shrink the damn government. Get it out of our pockets. Quit the socialism. Understand that the financial system was overly large and predicated on high levels of debt, and never should have gotten there. And that the real solution is a drastic reduction in government and in taxation...lowering that "first hurdle". Then and only then can we talk about an economy on solid footing. Because it has to be an economy where we spend what we *have*, not what we have borrowed! It has to be an economy where I get to keep most of what I earn, not where the government thinks it knows better than I do where my money should go! An economy where only the truly disabled are on the government payroll...where everyone else understands that their earnings and take-home *are*, in fact, related to the effort they put forth, and that working harder and being successful is not penalized!!

That's the only foundation for sustained prosperity. I'm not satisfied that either leading candidate fully understands all this. But one is clearly lagging the other.

2008 Oct 27 12:04 PM

[mik123:]

The following may explain why PNC was first. I read today most analysts were shocked that National City sold when they didn't have to. All had much higher price targets. With all the recently passed legislation, there is 0% chance of failure. Then I read that GOP Rep. Steven LaTourette is seeking Treasury Department and congressional investigations into whether Comptroller of Currency John Dugan steered $7.7 billion of taxpayer bailout money to his former client. PNC, so it could buy National City Bank. LaTourette said Dugan represented PNC as an attorney until August 2005 before starting his current position as Comptroller of Currency. He may be back working for PNC in 2-3 weeks with a new administration due January. It was reported that a week before the PNC - National City deal ,Dugan called National City CEO Raskind and said he shouldn't expect rescue money. It was reported that Dugan was heavily involved in the sale and was pushing for a deal by last Friday. LaTourette, a member of the House Financial Services Committee, wrote a letter to Paulson and Barney Frank requesting a probe. He also expressed concern that the bailout stipulated that the treasury could only give a bank 3% of its risk-weighted assets and PNC received 6%. This sale was so hurried because the treasury would look bad if they handed money to everyone else today and it became public they said no to the nations 7th largest bank. There would be public outrage because the whole purpose of the 700 billion was to rescue the banks.That's what the public was sold. There are no top 35 banks left other than National City that analysts were projecting a loss for 2009. National Citys loss projection is small at -.34 cents or apx 700 million. You can get earnings by going to smartmoney.com and put the ticker symbol in and click on earnings projections. My biggest question is why Goldman Sachs is receiving 10 billion in rescue money when they have nothing to rescue other than their share price. The biggest mistake with the 700 billion rescue plan was not having a congressional oversight committee allocate the money

2008 Oct 27 08:53 PM

[Hyrule:]

I would not count your PNC profits yet, my wee author:

PNC just might get Citigroped, or tanked, it you get my meaning.

National-PNC deal surprises some Wall Street analysts
moneycentral.msn.com/i...

Congressman Wants PNC-Nat. City Deal Investigated
U.S. News & World Report
National-PNC deal surprises some Wall Street analysts
moneycentral.msn.com/i...

Congressman Wants PNC-Nat. City Deal Investigated
U.S. News & World Report
www.usnews.com/blogs/t...

2008 Oct 28 01:14 PM