Fifth Third and Huntington: Big Winners from Stress Test

5/8/2009 12:30 PM EDT

Earlier this week, I said I thought that Fifth Third (FITB) and Huntington Bancshares (HBAN) were my favorite banks going into the Stress Test results. They've been the best bank performers today -- up 57% and 45% respectively today and more for the week.

I've sold my FITB May $6 calls this morning but rolled some of that profit into August $17.50 calls, as I see further upside ahead. Put me squarely in Jim's camp on financials versus Doug's(at least with respect to these smaller regionals).

For these two smaller players specifically, yesterday's news takes away the fear of highly dilutive future offerings. Yes, the risk of a drop in commercial real estate but that is countered with the potential for consumer mortgage re-fis continuing as we saw earlier in the week with FITB. What yesterday's results showed is that Midwestern regional banks were much better positioned than those in the Southeast (although FITB has its share of Florida exposure). This makes me less concerned about the commerical real estate shoe dropping in that part of the country.

Position: Long FITB.

Originally published in RealMoney.com

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Fifth Third: Mortgage Refi Hope vs. Stress Test Results

Fifth Third Bank (FITB) rocketed 25% yesterday after news came out that its mortgage unit had refinanced $21 million of Freddie Mac loans recently.

There's no question that when you look at FITB -- or any of the regional banks -- they look cheap on a price-to-book basis. Signs like yesterday's that the mortgage crisis is close to bottoming and that they will participate meaningfully in the recovery are a boon to the stock price.

The question you have to overlook in investing in a FITB (and the other smaller regionals) is what will Thursday's bank stress test results reveal about its capital needs. As such, the shares of FITB and other regional banks will trade like options this week.

If the stress test results are similar to recent earnings results, anything short of complete disaster will be taken as a positive and shares will rally. There are risks, but I've taken a small position in FITB. I particularly like the insider holdings at this bank (2.4%) and another Ohio-based bank, Huntington Bancshares (HBAN) (9% with some buying in the last week), compared to a Regions Financial (RF)(where insider holdings are less than 0.5%).

FITB and HBAN also have almost double and triple the short ratios respectively as RF. This rocket fuel will also send shares higher on even muted news on Thursday.

Position: Long FITB.

Originally published in RealMoney.com on 5/5/2009 7:50 AM EDT

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