In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.
First Horizon National Corporation (NYSE: FHN) operates as the holding company for First Tennessee Bank, making it one of many regional banks on our roster. If you're the intelligent, discerning audience that I assume you to be, I probably need only mention that FHN is in the mortgage-lending business for you to guess what might be ailing the stock.
What went wrong? At number 15 on our list of SPX laggards, FHN shed 76% of its value during the 10-year period ending June 30, 2008. The stock peaked at $48.65 in March 2004, but didn't start to plunge in earnest until July 2007. Say it with me, people: subprime.
While the share price didn't plummet immediately in response, FHN first revealed mortgage-related weakness in August 2006. The bank warned that quarterly earnings would be dented by deteriorating mortgage-market conditions, and profits fell during the next two quarters. FHN cited "lower gain on sale margins, further reductions in new mortgages and increased costs to hedge the servicing risks for mortgage loans" for the earnings weakness.
On September 4, 2007, FHN's head of employee services got chatty with The Memphis Daily News. John Daniel admitted that the bank was trimming its headcount gradually in a cost-cutting effort, but reassured the paper that the subprime crisis didn't have too deep an impact. "We don't see any significant reductions in staff as a result of what's happening in the mortgage industry right now," he asserted. Just a week later, on September 13, the Daily News reported that FHN was slashing 50% of its mortgage sales force, about 2,000 total positions.
Daniel's initial confidence seemed to stem from the fact that FHN offered only a small percentage of non-conforming loans. However, that couldn't shield the company from a housing slump and foreclosure crisis that smacked the entire industry. FHN posted steep losses in its third- and fourth-quarter reports. In January 2008, the company slashed its dividend by 56% in a defensive move. Shortly thereafter, Moody's and Standard & Poor's both lowered their debt ratings on the bank.
Following another sharp loss in the first quarter, FHN priced a public offering of 60 million shares of common stock at $10 per share in an attempt to shore up capital. In June, the company announced the sale of its mortgage business outside of Tennessee to MetLife, and said it expected its mortgage banking assets to decline by at least $3 billion by the end of the year.
What next? On July 15, First Horizon released its quarterly earnings ahead of schedule; investors were up in arms following a sharp drop-off in FHN's share price sparked by the failure of IndyMac. Revenue surpassed expectations, while the per-share loss was wider than expected; in any event, the equity recovered its losses, and then some, after FHN reiterated previous forecast for full-year charge-offs.
It seems that no one is sure what lies ahead for FHN. In the days following the most recent earnings report, the stock was hit with multiple price-target cuts, upgrades, and downgrades. Overall, though, the tone is bearish -- Zacks notes that 81% of the stock's analysts' ratings are either "holds" or "sells."
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the weekly video series Option Basics on SchaeffersResearch.com.
Retailers can't wait for Black Friday, open Thursday
Tiffany's serves up solid quarterly earnings
Cramer on BloggingStocks: This bullish retail story looks like a good fit 
