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Tickers in this Article: BBT, USB, STI, BRK-A, BRK-B, KBE, RKH, KRE
At the end of 2008, the entire market was a mess and the financial sector was the main cause of wealth destruction endured by investors. Investment banks, money center banks and their regional peers engaged in an array of less than prudent practices that imperiled shareholders and resulted in many former darling stocks taking on the look of a speculative penny stock. (How did America's strong economy tumble so quickly? Find out in The Fall Of The Market In The Fall Of 2008.)

When we reviewed the regional banking group in late 2008, the group looked like it was on life support - it appeared as though things couldn't get much worse for regional banks. The market seemed to be pricing in dilutive share offerings and dividend cuts and that's what regional banks delivered starting in early 2009. Banks that had rich dividend histories such as BB&T (NYSE:BBT) and U.S. Bancorp (NYSE:USB) took the ax to their payouts in an effort to conserve cash.

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Fast forward to 2009 and we find that select regional banks have started to find favor with investors again, but the sector at large remains unconvincing. There are three fairly liquid ETFs that track regional banking names; the SPDR KBW Bank Index (NYSE:KBE) is flat year-to-date as is the Regional Bank HOLDRs ETF (AMEX:RKH) and the SPDR KBW Regional Banking ETF (NYSE:KRE) is down 25%.

Let's take a look at what happened in 2009 and see what 2010 may have in store for several big regional banks.

Company 2009 Performance Price/Book
BB&T (NYSE:BBT) -3.9% 1.1
SunTrust (NYSE:STI) -28% 0.6
U.S. Bancorp (NYSE:USB) -8.5% 1.8

A Growing Regional Player
North Carolina-based BB&T has morphed from a bank known only in the Carolinas and Virginia into the eighth-largest bank by assets in the U.S. The company acquired Colonial BancGroup on the cheap in August after the bank was auctioned off by federal regulators, and to BB&T's credit, it was one of the first banks to repay the taxpayer funds it borrowed under the Troubled Asset Relief Program (TARP).

BB&T borrowed $3.1 billion under TARP, but those funds didn't prevent a 68% dividend cut in early 2009. Up to that point, BB&T had been a steady dividend payer, raising its payout for 37 consecutive years. While there hasn't been much talk of a dividend increase, Credit Suisse recently noted BB&T could trade as high as $50 by 2012, nearly twice where the shares traded in mid-December.

All things considered, BB&T has held up relatively well, and if the call for the stock's move to $50 proves accurate, there isn't much risk in starting a position in the shares right now, as they only trade at just over one time book value. (This calculation will serve up your portion of the shareholder pie, see Digging Into Book Value.)

Will this Buffett Favorite Rise Again?
U.S. Bancorp is another regional name that was tainted by its TARP participation and a hefty dividend cut, but it is worth noting that Warren Buffett's Berkshire Hathaway (NYSE:BRK.A, BRK.B) is one of U.S. Bancorp's largest shareholders, and Buffet didn't get to be a legendary investor by consistently betting on dogs.

U.S. Bancorp's conservative management team kept the bank away some of the sketchy practices that hurt rivals, and the company has made acquisitions in the past year to boost its presence in new markets, most notably California. The company said in early December it could make as many as five acquisitions a year and that it will examine increasing its dividend as earnings improve.

The banks Tier One capital ratio is decent at 6.8% and gains from its mortgage business and recent acquisitions could be a positive catalyst for U.S. Bancorp shares in 2010.

Has the Sun Set on this Bank?
SunTrust is the worst performer of the trio highlighted here, but the same Credit Suisse analyst that raised the outlook for BB&T is also bullish on SunTrust, raising his price target to $29 for the stock, saying the bank's footprint in the U.S. southeast could prove lucrative going forward. On the other hand, noted bank analyst Meredith Whitney has a "sell" rating on SunTrust and forecasts a per share loss of $4.07 in 2009 and $2.50 in 2010.

SunTrust faces problems in the form of rising loan losses and commercial real estate, making Whitney's estimates not all that far flung. In fact, the consensus estimate is for a 2009 loss of $4.19 a share and a 2010 loss of $1.04 per share.

SunTrust is another Buffett holding, but his stake in the bank has been decreasing and some media reports have speculated he may eventually sell his entire SunTrust position.

Outlook Better, But Not That Exciting
The bottom line with regional banks is that things are now less bad than they were a year ago, but there isn't a lot to cheer regarding the sector at large. There are a few quality names in the group, and BB&T and U.S. Bancorp may be among the top stocks in a group that is nothing if not challenging for stock pickers.

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