The banking sector, both in the United States and abroad, was thrown into chaos in 2008, and has never really emerged. Of course, some were less damaged and more able to recover than others. I will look at five large cap banks looking for values.
Bank of America Corporation (NYSE:BAC) is listed on the NYSE, and its stock was recently trading at a little under $7 per share, near the low end of its 52 week range of from $15.31 to $5.13. It has a market capitalization of about $70 billion. It has no trailing P/E ratio due to its large losses in 2010. It pays an annual dividend of $0.04 for an annual yield of 0.60%
Bank of America is the nation's largest bank by assets, and it recently released its third quarter report. BofA surprised many analysts by posting profits of $6.2 billion. The quality of those profits is another matter. Its loan loss reserves declined by $2.0 billion from the year earlier. It recouped nearly $1.7 billion from recapturing already spent loss reserves. It credited itself another $1.7 billion by revaluing its debt. It also recorded a substantial gain on the sale of equity in a Chinese bank. It actually lost money from continuing operations..
BofA still is struggling under the weight of faulty mortgages it acquired due to its purchase of Countrywide Financial. It has lost tens of billions due to soured mortgages from that portfolio, and the end is not in sight. If one feels compelled to buy a large domestic bank, they would be well advised to consider JP Morgan Chase & Co. (NYSE:JPM) or Wells Fargo & Co. (NYSE:WFC). Both have much stronger earnings streams and less uncertainty.
Barclays (NYSE:BCS) is listed on the NYSE, and its stock was recently trading at about $12 per share. Its 52 week range is from $21.69 to $8.31. Its market capitalization is just under $36 billion, and its trailing P/E ratio is 9. BCS pays an annual dividend of $0.26, for a yield of 2.2%.
It is not about past performance for BCS, which has been more than adequate by the way. The issue is entirely about Greece and the future of the Euro. There is no way the Greek nation can service its sovereign debt, let alone pay it back. Even discounted by 50%, it is mathematically impossible to imagine Greece paying its debt. So, what are the options?
Greek Premier Papandreou recently requested a referendum on his government, then immediately backed off. Will the EU make another $8 billion dollar “loan” to the Greek government.? How will the nation ever begin to pay it back? Will Greece secede from the eurozone? That might not be the worst thing for Greece, but it would be disaster for the economy of Europe.
There are so many unknowns, and BCS's exposure throughout Europe makes it particularly vulnerable. In the absence of some sort of clarity, I would avoid any European bank; such clarity may well be years off.
Hudson City Bankcorp, Inc. (NASDAQ:HCBK)
Hudson City Bancorp Inc. is listed on NASDAQ. It was recently trading at a little less than $6 per share, near the low end of its 52 week range of from $13.26 to $5.15. It has a current market capitalization of about $2.8 billion. It pays an annual dividend of $0.32 per share for an effective yield of 5.6%. Its P/E ratio is meaningless as it lost money in the past twelve months.
Hudson City Bancorp is historically a very well run thrift. It had recorded record earnings for twelve years in a row up to and including 2010. It has had some setbacks this year, however, accounting for its low stock price. In the first quarter of 2011, Hudson City Bancorp underwent a balance sheet restructuring that resulted in a non cash loss of $649 million. But even setting aside that accounting change, Hudson City Bancorp did not have a good third quarter. It posted profits for the quarter of $0.17 per share, compared with $0.25 in the year earlier quarter.
Hudson City Bancorp's book value per share is currently $10.06, a premium of roughly 70% of its current stock price. Given that, and its apparently secure dividend, Hudson City Bancorp holds appeal to value and income investors. I do have confidence that Hudson City Bancorp and its culture of success will not stay down in the dumps for long.
Sun Bancorp (NASDAQ:SNBC) is listed on NASDAQ, and was recently trading at a little less than $3 per share, near the low end of its 52 week range of from $5.04 to $2.25. It has a market capitalization of a little less than $250 million. It has lost money in the past twelve months, so has no P/E ratio; neither does it pay a dividend.
In its third quarter of 2011, Sun Bancorp's declared earnings of $2.7 million, or 3 cents a share. This compares favorably with the second quarter of 2011, when it lost $1.6 million, and the third quarter of 2010, when it lost $75 million. Sun Bancorp attributed these the profitable latest quarter on lower provisions for losses, improved loan quality, and lower non interest expenses.
Assuming the trends of an improved credit portfolio, and with a book value per share 20% higher than stock price as well as cash on hand greater than total debt, Sun Bancorp is in a position to sustain profitable growth. I believe it is a suitable investment for speculative investors.
Citigroup, Inc. (NYSE:C)
Citigroup, Inc (C) is listed on the NYSE, and was trading recently at a little over $30 per share. Its 52 week range is from $51.50 to $21.40, and its market capitalization is nearly $89 billion. It has a trailing P/E ratio of 8, and pays currently a dividend of a penny per quarter, for an effective annual yield of 0.1%
Citigroup's third quarter was superficially successful. Its net was $3.8 billion, an increase of 74% from the year ago quarter and an increase of 13% from the second quarter of 2011. But the third quarter revenues included a one time, $1.9 billion addition due to a credit valuation adjustment.
Citigroup continues to operate in a banking world rife with problems from past poor credit underwriting, untimely acquisitions, and foreign exposure. While its current capital ratios are excellent (Tier One capital of nearly 12%), the unknowns are a little much for me. Again I would steer toward JP Morgan Chase & Co. or Wells Fargo for a large cap banking investment.