Regions cut to Hold from Buy, analyst cites share price surge, commercial real estate concerns

Ahead of the Bell: Regions Financial

NEW YORK — Regions Financial Corp. was downgraded Wednesday by an analyst because a recent surge in its share price brought it in line with expectations, and the regional bank could still face steep losses from commercial real estate exposure.

Deutsche Bank analyst Matt O’Connor downgraded Regions to “Hold” from “Buy.”

In a research note, O’Connor said Regions shares have surged 44 percent since he upgraded shares in May, significantly outperforming the broader banking sector. That rise brought Regions share price in line with O’Connor’s trough tangible book estimate of $5.50 and just above his price target of $5.

Shares of Birmingham, Ala.-based Regions closed Wednesday at $5.51.

Aside from the recent share price gains, O’Connor said Regions Financial still could face large losses from its exposure to commercial real estate loans.

It is widely expected defaults on those types of loans will increase sharply in the coming quarters, putting pressure on banks’ earnings.

“We continue to believe commercial real estate-related losses will be much higher than the market expects for banks overall,” including at Regions Financial, O’Connor wrote in the note.

Despite concerns about potential loan losses, O’Connor said Regions Financial is in a strong enough capital position to handle any losses, so there is little chance the bank would need to raise additional money.