Regional banks offer hope

By Jonathan Stempel

NEW YORK (Reuters) - Several large U.S. regional banks posted better-than-expected quarterly results on Thursday, providing a glimmer of hope for a sector hit hard by higher loan losses in a recessionary economy.

Profit at Pittsburgh-based PNC Financial Services Group Inc (PNC.N: Quote, Profile, Research) was more than twice as high as analysts expected, while losses at Atlanta's SunTrust Banks Inc (STI.N: Quote, Profile, Research) and Cincinnati's Fifth Third Bancorp (FITB.O: Quote, Profile, Research) were smaller than forecast. In contrast, Milwaukee-based Marshall & Ilsley Corp (MI.N: Quote, Profile, Research) lost more money than analysts expected.

But the four banks boosted reserves for bad loans by at least 10 percent, reflecting the sector's weak fundamentals as losses accelerate in credit cards, commercial loans and commercial real estate loans, and remain high in residential mortgages.

"The operating environment remains difficult," SunTrust Chief Executive James Wells said on a conference call. "While we know recovery will be forthcoming, we are not looking for things to turn around quickly."

Nineteen large banks -- including PNC, SunTrust and Fifth Third -- are undergoing government "stress tests" to see if they would need more capital to weather a deep recession.

Results are due May 4. Keefe, Bruyette & Woods Inc analyst Frederick Cannon in a report Thursday said the industry needs $1 trillion of new capital to have sufficient reserves and be regarded as "well-capitalized."

Most of the nation's largest banks have reported quarterly results, and many fared better than in the fourth quarter as securities writedowns declined.

But results for some, including Bank of America Corp (BAC.N: Quote, Profile, Research) and Citigroup Inc (C.N: Quote, Profile, Research), were bolstered by accounting changes and trading gains that might not repeat.