Even though some financial institutions are ready, willing and able to return the funds received through the Troubled-Asset Relief Program (TARP), the sticking point remains what the government is willing to accept and what the financial institutions are willing to pay for the warrants attached to the preferred stock. While financial institutions have experienced a rebound over the recent couple of months, we note there are still a number of concerns that will continue to overhang the industry for a number of quarters:

• Unemployment remains extremely high, to within about a half a percent of the 10% level; as such the delinquency rates on prime loan home mortgages has increased.
• The 1Q09 moratorium on home foreclosures has been lifted, and the level of new foreclosures has started to rise again.
• Consumer loan delinquencies have been on the rise.
• Commercial loan issues have been on the rise.
• While financial institutions have sold some of their commercial loans (and the assets acquired), there remains a disconnect between seller and buyer price expectations. In addition, we suspect that if the sellers were to accept most of the prices offered there could be renewed concerns for capital requirements as a result.
• The financial institutions appear to have a willingness to lend. However, that willingness is slim versus none previously. The concern for potential malfeasance has resulted in a significant increase in the number of hoops qualified borrowers must jump through in order to receive a loan.

OPPORTUNITIES

We suspect that the recent improvement in share prices for financial stocks have gotten a bit ahead of the earnings and growth prospects over the near term. Considering the high level of unemployment and with foreclosures gnawing at prime mortgages, we continue to think the pay-day lenders and pawnbrokers still represent an opportunity, currently.

WEAKNESSES

While improvements have been noted, sightings of "green shoots" in the economy may have resulted in an overzealous response, as we continue to fail to see signs of enough positive catalysts to mitigate our negative outlook for the near-term prospects. We retain our Sell recommendation on the shares of Huntington Bancshares Inc. ( HBAN - Analyst Report ) , MGIC Investment Corporation ( MTG - Analyst Report ) and MBIA Inc. ( MBI ) .