Huntington Bancshares Nears TARP Repay

| About: Huntington Bancshares (HBAN)

Huntington Bancshares Inc. (NASDAQ:HBAN) is inching closer to the repayment of the bailout money it received under the U.S. Government’s Troubled Asset Relief Program (TARP). Last Friday, the company concluded its equity and debt offerings with the intent of paying back the TARP loan by December.

Huntington completed its public offering of around 146 million shares at $6.30 per share generating gross proceeds of $920 billion. Huntington also completed the public offer of $300 million in principal amount of its 7.0% Subordinated Notes due 2020.

Huntington would use the net proceeds coupled with other available funds to repurchase $1.4 billion of Series B Fixed Rate Cumulative Perpetual Preferred Stock the bank had issued to the U.S. Treasury under TARP. The time of repurchase would, however, depend on the authorization of the banking regulators and the approval of the Treasury.

The year 2010 has been one of turnaround for Huntington. The company, which was once plagued by significant souring loans and problem assets, has been able to return to profitability in 2010.

The strategic initiatives to de-risk its balance sheet, strengthen its capital levels and reorganize its business have helped Huntington navigate the current credit cycle and support earnings growth. Also, its recent capital raising initiatives to repay the TARP loan is encouraging though the size of the offering is somewhat reducing the investors’ enthusiasm for the stock.

Nevertheless, the TARP repayment is a positive factor for the stock in the long run as it would result in the removal of a significant overhang on the stock. Following the repayment, the company would get much more flexibility on issues of dividend payments, executive compensation packages and capital management.

Besides Huntington, First Horizon National Corp. (NYSE:FHN) has also recently raised capital through common stock offering to repay the TARP loan. They join other biggies such as Bank of America Corp. (NYSE:BAC) and Citigroup Inc. (NYSE:C), who went for capital raises through stock offering to repay the TARP loan around this time last year.

Huntington has recently announced that it expects to report its fourth quarter 2010 earnings on Thursday, January 20, 2011, prior to the market opening. Currently, the company is expected to report EPS of 9 cents in the fourth quarter and 21 cents for full year 2010, according to the Zacks Consensus Estimate.

While Huntington’s turnaround story is impressive, its significant exposure to the commercial real estate markets and the Midwest still remains a concern. The recent regulatory changes will also continue to restrict fee income growth in the upcoming quarters.

Huntington Bancshares currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. Considering its fundamentals, we also have a Neutral recommendation on the stock.