"Even among the broad-based market carnage of the past year, regional banks with heavy real estate exposure have been notably poor performers," notes turnaround expert George Putnam.

In The Turnaround Letter, he explains, "While investors are still wary of this group, there are cases where the market has overreacted and the stocks will eventually rebound dramatically." Here, he looks at four favorite regionals.

"Many regional banking stocks are now trading at a small fraction of their 'book value.' In more normal times, most banks will trade for two to three times book value and sometimes more.

Here are some highlights from last week's earnings coverage from BloggingStocks:

• Advanced Micro Devices Inc. (NYSE: AMD) narrowed its net loss in Q2 but not as much as expected.
• Apple Inc. (NASDAQ: AAPL) posted better-than-expected Q3 results on demand for iPhones and Macs.
• Intuitive Surgical Inc. (NASDAQ: ISRG) reported earnings and revenue that topped expectations.
• JDA Software Group Inc. (NASDAQ: JDAS) shares surged after it reported record results for Q2.
• Microsoft Corp. (NASDAQ: MSFT) lower Q4 results still topped earnings estimates, but shares fell.
• VMware Inc. (NYSE: VMW) unimpressive Q2 results still managed to beat analysts' low expectations.
• Yahoo! Inc. (NASDAQ: YHOO) Q2 profit was flat year over year and revenue and cash flow declined.

KeyCorp (NYSE: KEY) stepped into the earnings spotlight this morning, announcing that its second-quarter loss checked in at 69 cents per share (68 cents per share excluding charges). A year ago, the bank lost $2.71 per share in the second quarter. Although the results were better than those from a year ago, they were not better than the consensus estimate, which called for a loss of 41 cents per share.

The company also announced that it was cutting the amount of preferred shares that it plans to exchange by 71%. KeyCorp's CEO (Henry Meyer III) stated that the company's results "reflect the weak economic environment and the steps that it has taken to address issues in credit quality, strengthen capital and control costs." Like many regional banks, KeyCorp suffered thanks to the credit crunch; even though the bank was not a major player in the subprime-mortgage fiasco. The company added that loan-loss provisions were $850 million, which was 31% greater than a year ago.

I think it's fair to say that there's much trepidation about the earnings season that picks up steam this week. And for better or worse, numbers from the big financials have begun to roll in. Last week we saw profit sink for JPMorgan Chase (NYSE: JPM) and significant losses from Bank of American Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), and Deutsche Bank (NYSE: DB).

Analysts surveyed by Thomson Reuters expect Bank of New York Mellon Corp. (NYSE: BK) to be among those financials reporting fourth-quarter earnings growth this week. They anticipate that Bank of New York will post a profit of $0.70 per share, compared to $0.67 per share a year ago and $0.72 in the previous quarter. Revenue is expected come to $3.8 billion, about the same as it was a year ago. Bank of New York has fallen short of earnings estimates in two of the past five quarters, by as much as 11.1%. For the full year, analysts are looking for $2.78 per share (+5.8%) on $14.8 billion (+4.2%). The consensus recommendation of analysts is to buy BK, and the long-term EPS growth rate forecast is 10.7%. Shares are 48.7% lower than a year ago. Other financials expected to report quarterly earnings growth this week include SunTrust Banks Inc. (NYSE: STI) and M&T Bank Corp. (NYSE: MTB).

Analyst upgrades:

• Keefe Bruyette upgraded shares of Colonial Bancgroup (NYSE: CNB) to Outperform from Market Perform on valuation following the recent weakness and believes the company will be eligible to receive TARP funds. Morgan Stanley believes the company's valuation adequately reflects risk to the loan portfolio; the firm raised shares to Equal Weight from Underweight.
• Merrill upgraded Ericsson (NASDAQ: ERIC) and ASML Holding (NASDAQ: ASML) to Buy from Underperform and believes their valuation reflects the worst-case for bad news.
• Oppenheimer upgraded Trimble Navigation to Outperform from Perform on valuation as they believe the company's long-term growth story is intact.
• Celestica (NYSE: CLS) was upgraded to Sector Outperformer from Sector Performer at CIBC.
• KeyCorp (NYSE: KEY) was added to Goldman's Conviction Buy List.
• Wachovia raised EastGroup Properties (NYSE: EGP) to Outperform from Market Perform.

Analyst downgrades:

• UBS cut Barclays (NYSE: BCS) to Neutral from Buy as they believe capital raises could negatively impact earnings and that the dividend is likely to be cut.
• JP Morgan downgraded Discovery Holdings (NASDAQ: DISCA) to Underweight from Neutral based on valuation and the deteriorating economic outlook.
• Friedman Billings downgraded shares of Janus Capital (NYSE: JNS) to Underperform from Market Perform and lowered its target to $7 from $23 as they see further risk to the downside following the company's weaker-than-expected results.
• LKQ Corp (NASDAQ: LKQX) was cut to Sector Perform from Outperform at RBC Capital.
• Affymetrix (NASDAQ: AFFX) was lowered to Sell from Hold at Deutsche Bank.
• RightNow Tech (NASDAQ: RNOW) was downgraded at Baird to Neutral from Outperform.

Wall Street's optimism in last week's preview about the earnings of tech stocks wasn't misplaced, as there were many more positive surprises than negative ones among the stocks we looked at. This week will bring plenty more data for investors in and watchers of the sector to mull over. Apple Inc. (NASDAQ: AAPL), AT&T Inc. (NYSE: T), and Microsoft Corp. (NASDAQ: MSFT), for example, are expected by analysts surveyed by Thomson Financial to post modest earnings gains from a year ago, to $1.11 per share (on $8.1 billion in sales), $0.72 per share (on $31.3 billion in sales), and $0.47 per share (on $14.8 billion in sales) respectively. All three of these companies ended the week closer to their 52-week lows than highs, and analysts on average consider them each a buy.

Here's a look at some of the week's biggest expected earnings gainers and decliners in the sector:

• Baidu.com Inc. (NASDAQ: BIDU): $1.25 per share (+44.0%) on revenues of $134.7 million (+103.2%)
• Broadcom Corp. (NASDAQ: BRCM): $0.44 per share (+38.6%) on revenues of $1.3 billion (+33.8%)
• QLogic Corp. (NASDAQ: QLGC): $0.31 per share (+29.0%) on revenues of $170.0 million (+21.2%)
• FLIR Systems Inc. (NASDAQ: FLIR): $0.32 per share (+28.1%) on revenues of $275.2 million (+44.0%)
• Juniper Networks Inc. (NASDAQ: JNPR): $0.30 per share (+26.7%) on revenues of $927.4 million (+26.2%)
• Waters Corp. (NYSE: WAT): $0.75 per share (+17.3%) on revenues of $391.6 million (+11.1%)
• Flextronics International Ltd. (NASDAQ: FLEX): $0.29 per share (+17.2%) on revenues of $8.7 billion (+57.3%)
• EMC Corp. (NYSE: EMC): $0.19 per share (+10.5%) on revenues of $3.7 billion (+12.9%)

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.

The sad tale of KeyCorp (NYSE: KEY) is one of slow, steady progress up the charts -- followed by steep, stomach-churning declines. The stock topped out at $44.88 in April 1998, and then spent the next two years free-falling down the charts. This March 2000 bottom was followed by a slow and steady march higher that didn't reach its peak until February 2007, when the shares again began to cascade lower.

What went wrong? At number 24 on our list of S&P 500 laggards, KEY shed 69% of its value between June 30, 1998 and June 30, 2008, when the shares settled at $10.98. While the equity started slipping in February 2007, KEY didn't take its first massive hit until the following October. In its third-quarter earnings report, the financial-services firm announced a profit of 54 cents per share -- woefully short of analysts' consensus forecast, which called for 71 cents per share.

At the time of the earnings miss, the subprime-infected finance sector was already sweating under the glare of Wall Street's spotlight, and KEY's slip-up resulted in a single-day drop of almost 6%. Chairman and CEO Henry Meyer III assured investors that the worst was over for banking stocks ... but, on May 30, KEY plunged again after hiking its forecast for net loan charge-offs. A few weeks afterward, on June 12, KEY sheepishly confessed plans to slash its dividend by half in an attempt to shore up capital. Traders unleashed their wrath with particular enthusiasm; during the course of that single session, the stock shed nearly 24%.

MAJOR PAPERS:

• The Wall Street Journal's "Fund Track" reported that some banks struggling to raise capital may sell their money management units. National City Corporation (NYSE: NCC) is selling its Allegiant Funds, Fifth Third Bancorp (NASDAQ: FITB) is considering selling its Fifth Third Asset Management, and KeyCorp (NYSE: KEY) will possibly sell its Victory Capital Management unit.
• The Wall Street Journal also reported that Andrew Cuomo, the New York state Attorney General, is preparing to file civil securities-fraud charges against UBS AG (NYSE: UBS), possibly as early as this week. Sources said the lawsuit may include allegations of malfeasance by senior UBS executives.

WEB SITES:

• Bloomberg reported that money manager John Paulson, the owner of Paulson & Co., is launching a hedge fund that will provide capital to financial firms which have been damaged by the housing crisis. Paulson, who wants to open the fund by December, used bets against the U.S. housing market to help him earn $3.7B in 2007.
• After U.S. lawmakers reached a deal on legislation to alleviate the housing recession, the House of Representatives will today vote on a rescue plan for Fannie Mae -- Federal National Mortgage Association (NYSE: FNM) -- and Freddie Mac -- Federal Home Loan Mortgage Corporation (NYSE: FRE). Representative Barney Frank said that the package, which increases the likelihood Treasury Secretary Henry Paulson will get the authority to inject capital into the two, is "fully acceptable," Bloomberg reported.
• Oil trading losses forced SemGroup LP, which used to be America's 12th largest private company, to declare bankruptcy yesterday. Reuters noted that SemGroup LP's parent company is SemGroup Energy Partners LP (NASDAQ: SGLP).

KeyCorp (NYSE: KEY), which is the third largest bank in Ohio, has survived many challenging market environments. After all, the bank's roots go back to 1825.

However, the latest credit crisis has been particularly tough. Over the past year, the stock price has plunged from $37 to $11.46.

Well, this week, KeyCorp raised $1.65 billion from a common and preferred stock offering. Actually, the company was able to sell 10% more than expected.

Like other banks, KeyCorp binged on loans over the past few years. In fact, a big piece of the lending was for residential real estate construction (especially in California and Florida). Needless to say, those loans are shaky now.

Something else: KeyCorp needs to take a sizable charge for an adverse court ruling because of leveraged lease transactions.

As a result, KeyCorp expects to report a $1.1 billion to $1.2 billion loss for Q2. And, after 43 years of increases in dividends, the company also had to slash its payout by half.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

KeyCorp (NYSE: KEY) is recently trading at $15.15 in pre-open trading, below its close of $15.71 Wednesday.

KEY lowered its quarterly dividend by 50% and announced an approximate $1.5 billion in new equity capital raise to offset tax accounting charges and maintain strong capital ratios.

KEY July option implied volatility of 68 is above its 26-week average of 47 according to Track Data, suggesting larger price risk.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

The level of bad loans at US banks is getting worse and not better. According to the FT, "Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, said it was likely loan-loss provisions and bank failures would rise in coming quarters as the fallout from market turmoil hits the real economy."

Three banks have failed this year and the FDIC says the number of "problem" banks sits at 90.

All of this may be tough on regulators who may have to bail banks out, but it could be tougher on shareholders who have stock in mid-sized and regional banks. NCC (NYSE:NCC) has already had to raise $7 billion. Its shares are down to $5.68 from a 52-week high of $35.83. Other banks in the same category, such as Fifth Third (NASDAQ:FITB) and KeyCorp (NYSE:KEY), have lost about half their price compared to 52-week highs.

The news from the FDIC shows that investing in financial firms remains tricky and dangerous. It is not for the faint of heart.

Douglas A. McIntyre is an editor at 247wallst.com.

MAJOR PAPERS:

• According to the Wall Street Journal, troubled Ohio bank National City Corporation (NYSE: NCC) is considering a plan to sell itself to rival KeyCorp (NYSE: KEY), people familiar with the matter said.
• The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) yesterday said it had sent information to the SEC about possible abusive short-selling in its shares in recent days. Lehman CFO Erin Callan said the SEC was examining whether hedge funds collaborated to drive down the bank's share price in the days following the near collapse of The Bear Stearns Companies (NYSE: BSC).
• Colombia's heavy oil area could hold 20B barrels of recoverable resources, the Financial Times reported, giving the country greater reserves than leading producers such as Mexico and Algeria, according to Colombia's government.

WEB SITES:

• The Silicon Alley Insider reported that Douglas Merrill, Google Inc's (NASDAQ: GOOG) CIO, is leaving the company to become the president of music company EMI.

MOST NOTEWORTHY: Chevron, AXA and Emageon were today's noteworthy upgrades:

• Bears Stearns upgraded shares of Chevron (NYSE:CVX) to Outperform from Peer Perform after raising their oil price assumption for 2008 to $75 per barrel from $60 per barrel. They believe CVX should benefit from stronger earnings.
  
• AXA (NYSE:AXA) was raised to Outperform from Neutral at Credit Suisse, as they believe positive Q4 sales results will ease concerns on the impact of the economic slowdown.
  
• Friedman Billings raised its rating on Emageon (NASDAQ:EMAG) to Outperform from Market Perform based on valuation and the belief that the Q4 EPS turnaround is on track.

OTHER UPGRADES:

• Punk, Ziegel upgraded Washington Mutual (NYSE:WM) and Key Corp (NYSE:KEY) to Market Perform from Sell.
  
• Lehman upgraded CaviumNetworks (NASDAQ:CAVM) to Overweight from Equal Weight.
  
• StatoilHydro (NYSE:STO) was upgraded to Hold from Sell at ING.

MOST NOTEWORTHY: Nasdaq Stock Market, Family Dollar, Circuit City, Wells Fargo and Key Corp were today's noteworthy downgrades:

• Credit Suisse downgraded Nasdaq Stock Market Inc (NASDAQ: NDAQ) to Market Perform from Outperform on valuation.
  
• JP Morgan expects Family Dollar Stores Inc (NYSE: FDO) to face macro pressures and increased competition from Wal-Mart Stores Inc (NYSE: WMT) and Dollar General.
  
• Bear downgraded shares of Circuit City Stores Inc (NYSE: CC) to Peer Perform from Outperform based on lack of visibility, execution issues, softer consumer environment, potential pricing disruptions, and product cycle concerns.
  
• Merrill downgraded shares of Wells Fargo and Company (NYSE: WFC) to Neutral from Buy to reflect higher credit losses and valuation and KeyCorp (NYSE: KEY) to Sell from Neutral to reflect the company's "weak" revenue growth.

OTHER DOWNGRADES:

• B. Riley downgraded shares of Iris International Inc (NASDAQ: IRIS) to Neutral from Buy.
  
• Soleil downgraded ExpressJet Holdings Inc (NYSE: XJT) to sell from Hold.
  
• Calyon downgraded Weatherford International (NYSE: WFT), Transocean Inc (NYSE: RIG) and Diamond Offshore Drilling Inc (NYSE: DO) to Add from Buy.

MOST NOTEWORTHY: Sanofi-Aventis (SNY), Dell (DELL), Warner Music Group (WMG), KeyCorp (KEY) and SanDisk Corp (SNDK) were today's noteworthy upgrades:

• HSBC upgraded shares of Sanofi-Aventis (NYSE: SNY) to Overweight from Neutral to reflect the company's new drug pipeline investments.

• ThinkEquity raised Dell (NASDAQ: DELL) to buy from Sell based on expectations for a better-than-expected July quarter due to strong consumer business demand.

• Pali Research upgraded Warner Music Group (NYSE: WMG) to Neutral from Sell on valuation with the stock down 40% year-to-date.

• Merrill upgraded KeyCorp (NYSE: KEY) to Neutral from Sell following better-than-expected Q2 results.

• JP Morgan upgraded SanDisk (NASDAQ: SNDK) to Overweight from Neutral citing increased demand for NAND applications and supply constraints...

OTHER UPGRADES:

• Bernstein upgraded Campbell Soup (NYSE: CPB) to Outperform from Market Perform.

• Boston Properties (NYSE: BXP) was raised to Hold from Underweight at Keefe Bruyette.

• Matrix upgraded Acuity Brands (NYSE: AYI) to Strong Buy from Buy.

• Bernstein raised Regions Financial (NYSE: RF) to Market Perform from Underperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).