First Horizon shares rise with other financials

Shares of the Memphis, Tenn.-based bank gained $1.88, or 20 percent, to $11.24. Shares are down 36 percent for the year.

The government's $700 billion financial rescue plan, defeated in the House on Monday, is back on track for quick passage. Senate leaders, who are to vote on the sweetened plan Wednesday night, have added a provision increasing insurance for people's deposits and tax breaks for businesses and the middle class.

The legislation under consideration still centers on the government buying bad mortgages and other deficient assets held by troubled financial institutions--and could prove a boon to banks like First Horizon that are exposed to souring loans.

In a note to clients, Keefe, Bruyette & Woods analyst Jefferson Harralson, who assumed coverage of the bank from Fred Cannon, expressed concern over First Horizon's remaining concentrations in home equity and construction loans in Tennessee.

According to Harralson, First Horizon's home equity exposure equates 36 percent of total loans.

"We believe this portfolio will continue to be a point of stress for First Horizon and that credit costs will be elevated well into 2009 as Tennessee's housing economy weakens and First Horizon experiences losses on the wind-down of the national home equity book," Harralson wrote.

However, Harralson believes First Horizon raised enough capital in the second quarter to survive the remainder of the credit crisis without having to raise additional capital.

Harralson now expects the regional bank to record a loss of 85 cents per share in 2008. This compares with a prior estimate of a loss of $1.25 per share. Analysts polled by Thomson Reuters, on average, anticipate a full-year loss of 27 cents per share.