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Stock Strategist Industry Reports

As the Dust Settles, Which Ohio Bank Fared Better?

Shareholders of the big three Buckeye State banks have endured some hard times.

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After years of sturdy returns and attractive dividend payments, shareholders of  Fifth Third Bancorp (FITB),  KeyCorp (KEY), and  Huntington Bancshares (HBAN) saw the value of their holdings fall precipitously as the U.S. economy plunged into the greatest recession since the Great Depression. Not only did shares shed about 90% of their market value, but the banks' tangible book value also got walloped from monumental loan losses and dilutive new equity offerings. While we think the worst is over, none of these banks is completely out of the woods yet.

In 2007, as the economy worsened and credit issues started to emerge, these banks' shares started what looked like a free-fall. To be sure, all three banks had to take credit baths, with net charge-offs reaching between 1%-2% of loans in a single quarter--higher than their traditional loss rates for a full year. It was a vicious cycle. Mounting loan losses and grim economic news dealt heavy blows to both current and expected earnings, which in turn took big bites out of the firms' capital and increased the likelihood of dilutive equity issuances at distressed prices--only to propel share prices lower. At this cycle's worst, in early 2009, both Fifth Third's and Huntington's shares lost nearly 95% of their 2006 prices, and around 85% of KeyCorp's value vanished. As a result, the price/tangible book ratios for Fifth Third and Huntington bottomed out at just 0.3 times, which was clearly the result of a panicked sellout that factored in a relatively high--and, likely, unwarranted--probability of failure, in our opinion.

Maclovio Pina does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.