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Sept 29 (Reuters) - The U.S. authorities' $700 billion trouble asset relief program will benefit regional banks more than the initial proposal, said J.P. Morgan Securities, but recommended investors to avoid consumer-oriented banks like TCF Financial TCB.N.
Investors should focus on banks such as Synovus Financial (SNV.N), Colonial BanGroup CNB.N and Zions Bancorp (ZION.O) as these will benefit from the stability in the housing markets proposed in the relief program, analyst Steven Alexopoulos said.
However, Friedman Billings Ramsey analyst Paul Miller sees only modest, short-term benefit for community and regional banks in the brokerage's coverage universe.
"The problem, in our opinion, remains over-levered balance sheets that require a combination of balance sheet contraction and raising of equity capital to permanently address investors' concerns regarding long-term solvency of many institutions, Miller said.
U.S. lawmakers are in talks over a proposed financial system bailout, which included buying of soured assets and a change in treatment of government sponsored enterprises' preferred stock losses. Morgan Stanley analyst Ken Zerbe expects certain banks in the group to benefit from a potential change in the treatment of government sponsored enterprises' (GSE) preferred stock losses by U.S. authorities.
"We believe Sovereign Bancorp SOV.N would benefit the most if the tax proposal is enacted, as it currently does not have sufficient capital gains to offset the projected impairment loss on its GSE holdings," Zerbe wrote in a note to clients.
Colonial and Synovus Financial are the brokerage's highest conviction "underweight"(s) in the mid-sized banks' group.
Zerbe still favors better-capitalized banks, such as Hudson City Bancorp HCBK.O and People's United Financial (PBCT.O), given the economic uncertainty and the possibility that the nation moves into a recession by end of 2008. (Reporting by Sweta Singh in Bangalore; Editing by Amitha Rajan)