The Zacks Analyst Blog Highlights: Wells Fargo, Citigroup, JPMorgan Chase, First Financial Bancorp and First of Long Island

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Sep 03, 2014, 09:30 ET

CHICAGO, Sept. 3, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Wells Fargo & Company (NYSE:WFC-Free Report), Citigroup Inc. (NYSE:C-Free Report), JPMorgan Chase & Co. (NYSE:JPM-Free Report), First Financial Bancorp. (Nasdaq:FFBC-Free Report) and First of Long Island Corp. (Nasdaq:FLIC-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday's Analyst Blog:

Municipal Bonds to Lose Liquid-Asset Status? 2 Banks to Avoid

According to a Bloomberg report, municipal bonds may no more be part of banks' easily sellable assets following a ruling on Sept. 3. Regulators, which include the Federal Reserve, are likely to approve a final liquidity rule next week that will exclude the said asset class from bank's easily sellable assets. This may be a huge move as its effects will be on banks, municipal bodies and definitely investors of these bonds.

The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. have based the ruling on the accord of the Basel Committee on Banking Supervision. The ruling is said to be done to "head off" the vulnerability witnessed during the crisis in 2008.

The approval will take away banks' freedom to show their survival strength through a 30-day squeeze banking on these high-quality assets. The cities, or the municipal bodies, will certainly face trouble to raise capital. Once the banks decide to exit the high-class assets and demand falls for the bonds, the prices will go down and thereby damaging investors' portfolio.

Impact on Banks, Investors and Cities

The regulation will surely impact the prices of the $3.7 trillion municipal bond market. The banks will no longer find it attractive to invest in municipal bonds once they stop becoming a cushion for banks during a credit crunch. Banks get cash by easily liquidating municipal bonds during crunch time. Thus, the ruling will lead banks to cut their exposure.

The demand for municipal securities will fall, resulting in high borrowing costs for the government bodies. Official from 18 cities stated: "Imposing standards against all municipal issuers that are more conservative than the international standard will hurt the real engines of the U.S. economy."

Frank Keating, president of American Bankers Association, argued that restricting the liquid assets to Treasuries and Fed bank balances among others will "almost certainly decrease liquidity in asset markets disfavored by the rule."

Importance of Bank Holdings

The Federal Reserve data suggests that the US chartered banks have almost doubled their holdings from $221.9 billion in 2008 to $425.2 billion at the first quarter end. This helped offset declining demand from the retail investors.

Wells Fargo & Company (NYSE:WFC-Free Report) has the largest exposure to municipal bonds among the country's other biggest banks. Regulatory filings confirmed that Wells Fargo held $47.3 billion worth municipal bonds on Jun 30. However, there was no confirmation on how much of it was in the liquidity tally.

Citigroup Inc. (NYSE:C-Free Report) said it held about $16 billion of municipal, asset-backed securities and corporate bonds. The exact figure for municipal bonds was not confirmed. Howard Marsh, head of a munis division of a Citigroup's unit, said that asset classes are necessary for emergency liquidity as it has "high credit quality, has low historic default rates and one to which the aggregate financial sector has limited exposure."

JPMorgan Chase & Co. (NYSE:JPM-Free Report), among others, confirmed to be above minimum required liquidity ratio, but they did not specify the amount of municipal bonds in their liquid assets portfolio.

2 Banks with Low Liquidity

The liquidity and coverage of a bank is thus crucial. On that note, here we will pick 3 banking stocks that have current ratio of less than or equal to 1, debt-to-capital ratio of greater than or equal to 1. These banking stocks also carry unfavorable Zacks Rank and are seeing negative earnings estimate revision trend.

First Financial Bancorp. (Nasdaq:FFBC-Free Report) is a financial holding company providing commercial banking and other banking-related services to individuals. It provides deposit products including interest-bearing and noninterest-bearing accounts, real estate loans, commercial loans and consumer loans.

This Zacks Rank #4 (Sell) stock has a current ratio of 0.87 and carries debt-to-equity ratio of 1.06. For the current quarter and year, the Zacks Consensus Estimate moved 6.7% and 2.6% lower, respectively, over the last two months.

The First of Long Island Corp. (Nasdaq:FLIC-Free Report) is a bank holding company providing financial services for private businesses, consumers and professionals. The deposit products include checking accounts, rent security accounts, savings products and individual retirement accounts. It also provides loans and offers ATM banking, bill payment and cash management among others.

This Northeast bank currently holds a Zacks Rank #4 (Sell). The current ratio stands at 0.8 and debt-to-equity ratio is 1.31. The Zacks Consensus Estimate for the current quarter has gone down by 1.6% in the last two months. Also, for the full year, the estimate moved down to $2.49 from $2.50.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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