First Horizon Leveraging Trading To Offset Weaker Core Banking

I turned more cautious on First Horizon (FHN) after the first quarter, as I liked the long-term opportunity but had some concerns about nearer-term risks around reserve levels and credit performance in the combined First Horizon and Iberia loan books. Since then, the shares have done pretty well as the Street has gotten more comfortable with the idea that the worst-case scenarios for the pandemic-driven recession are unlikely to materialize, and the shares have outperformed other comparable banks like Regions (RF) and Synovus (SNV).

I do still have some lingering concerns about the bank's reserves and the risk of a bigger hit from credit losses. It's also pretty clear that First Horizon, really, will need to make the most of its opportunities in fixed income trading and in merger-driven synergies to offset the pressures on the core banking franchise from low rates and weaker loan demand. All of that said, the discount to tangible book and my long-term estimate of core earnings is just too low and I still believe First Horizon is poised for above-average long-term returns.

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First Horizon Leveraging Trading To Offset Weaker Core Banking