Risk Perception Around Regions Financial Will Remain A Near-Term Headwind

With the Street running scared amid greatly elevated modeling uncertainty (for the economy as well as individual companies), risk perception is a significant factor today, and one that doesn't help Regions Financial (NYSE:RF). Only time will tell whether Regions' loan book is as risky as the Street seems to think it is, but for today's valuation to make sense on a long-term basis, you basically have to assume a significant long-term impairment in returns below the cost of equity and/or the need to raise meaningful capital to cope with elevated loan losses.

I do believe that loan losses will accelerate from here and that Regions will have to add to its reserves (I also believe this is true for virtually all of Regions peers). Even if Regions does have a worse-than-average experience with its loan book over the next few years, I don't think it will be as bad as the Street is pricing in. I thought Regions was undervalued before on similar concerns about its credit quality (as well as its rate exposure), and while the shares do look substantially undervalued, that's true of so many stocks now that investors are almost spoiled for choice unless you believe a truly ugly credit/capital evolution is on the way.

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Risk Perception Around Regions Financial Will Remain A Near-Term Headwind