Bank On These Stocks
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last year was quite a disappointing one for the banking sector. A lot of names in the industry made quite a few losses last year, so much so that even though they have done better in 2012, they still haven’t made up what they lost. Keeping this in mind, let’s take a look at some stocks that are worth considering. One of these is a bit of a gamble, but the other two look like fairly safe bets.
Bank of America
Bank of America (NYSE: BAC) has received a great deal of criticism regarding its mortgage-related acquisitions, namely Countrywide Financial and Merrill Lynch. The company was once the biggest bank in the United States in terms of assets, but a string of mortgage-related lawsuits forced the bank to shrink its balance sheet. So far, Chief Executive Officer Brian Moynihan has tried to make the bank smaller and more efficient.
In technical terms, the company has been doing quite well. According to the rubric used by the Basel III regulatory standards, the bank had capital levels of 8.97%, compared to Citigroup at 8.6% in the last quarter, JPMorgan at 8.4%, and Wells Fargo at 8.02%.
The credit for the bank’s improvement is often given to Moynihan’s “Project BAC.” The program was designed to make the company take less risk, generate more revenue from its existing customers, and become a more powerful player in international investment banking. Stifel Nicolaus analyst Christopher Mustacio predicts that the company’s earnings per share could increase by 30% in 2014, while other major banks are expected to report growth of 5%. However, Barron’s has noted that this is only possible assuming that the bank keeps whittling away at its mortgage portfolio.
That is one of the major drawbacks with the company: it has a highly toxic mortgage portfolio that is very much part of the core businesses. Furthermore, Bank of America’s lawsuit load has been staggering. The company keeps getting entangled in legal issues, which is another reason to stay away.
Signature Bank (NASDAQ: SBNY) had total assets of $16.5 billion as of Sept. 30. The bank reported third-quarter earnings of $47.7 million, or a dollar a share, increasing from $45.3 million, or $0.96 a share, in the second quarter, and $38.4 million, or $0.83 a share, in the third quarter of 2011. Total loans grew by 9% just in the third quarter, to $8.8 billion as of Sept. 30, growing by 28% from a year earlier.
The shares trade for 2.1 times their reported Sept. 30 book value of $33.80, and for 16 times the consensus 2013 EPS estimate of $4.29. The consensus 2014 EPS estimate is $4.69. The company is also outperforming expectations, as noted by KBW analyst Christopher McGratty, who wrote that “in the world of modest economic growth, Signature continues to defy the banking odds, producing 36 percent [annualized] loan growth in what we had expected to be a seasonally slower growth quarter.” Loan growth has occurred across all asset classes. McGratty rates the company as “market perform,” while Jefferies rates it a “buy.”
First Republic Bank
First Republic (NYSE: FRC) had $32.6 billion in assets as of Sept. 30. The bank has offices in with offices in California, Oregon, Connecticut, Massachusetts, and New York, focusing on private banking and jumbo mortgage lending. On Nov. 2 the bank announced a deal to acquire Luminos Capital, which is an investment advisor with $5.5 billion assets under management.
First Republic reported third-quarter earnings available to common stockholders of $97 million, or $0.72 a share, increasing from $87.8 million, or $0.66 a share, in the third quarter of 2011. Third-quarter net interest income was $298.8 million, increasing 3% from the previous quarter, and 11% year-over-year. First Republic is another bank that has seen loans grow – a total growth of 27% year-over-year, to $26.3 billion, as of Sept. 30. The bank’s operating return on assets was 1.27% and its return on average tangible common equity was 13.87% during the aforementioned quarter, according to Thomson Reuters Bank Insight.
Jefferies analyst Casey Haire has upgraded the stock to a “buy” from “hold.”
ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!