Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Bank of America Corp (BAC), Citigroup Inc. (C): Are These Three Mega-Banks Attractive for 2013?

Page 1 of 2

The Federal Reserve has approved most of the big U.S. banks’ capital plans, including Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC) and Citigroup Inc. (NYSE:C). With these Fed approvals, investors might see significant share buybacks and dividend payments from those three banks in 2013. Are these major U.S. banks investment opportunities after they passed Fed stress tests? Let’s find out.

Bank of America (NYSE:BAC)

Bank of America Corp (NYSE:BAC) – Largest deposit base with decent total yield

Bank of America is considered to have the largest deposit base among the three big banks, with more than $1 trillion in deposits in 2012. In the third quarter of 2012, Bank of America Corp (NYSE:BAC) had a Tier 1 common ratio of 11.4% and a Tier 1 capital ratio of 13.6%. Under the severely adverse scenario of Federal Reserves’ estimates, its projected Tier 1 common ratio would be 6.9%, while its projected Tier 1 capital ratio would be 8.5% in the fourth quarter of 2014. Bank of America intended to repurchase $5 billion in common stock and redeem about $5.5 billion in preferred stocks (both a 8.2% Series H and 8.625% Series 8). A $5 billion buyback could retire as much as 3.7% of its total shares outstanding in the next twelve months. At the current price of around $12.50 per share, its total market cap is around $135 billion. The market values Bank of America Corp (NYSE:BAC) at 9.6 times forward earnings and 0.6 times its book value. The dividend yield is at 0.3%. Thus, the total yield (share buybacks + dividends) is around 4%.

Citigroup Inc. (NYSE:C) – not exciting enough

Citigroup had a higher Tier 1 common ratio and Tier 1 capital ratio than Bank of America. In the third quarter 2012, Citigroup had 12.7% in Tier 1 common ratio and 13.9% in Tier 1 capital ratio. Under the Fed’s severe adverse scenario assumption, Citigroup would be still strong with 8.9% Tier 1 common ratio and a 9.8% Tier capital ratio in the fourth quarter of 2014. Citigroup Inc. (NYSE:C) plans to repurchase $1.2 billion of stock in 2013. At $46 per share, Citigroup Inc. (NYSE:C) is worth nearly $140 billion on the market. It is valued at 8.8 times forward earnings and 0.8 times its book value. Its dividend yield is very small at only 0.1%. As a $1.2 billion share buyback would generate an additional 0.85% yield to shareholders, its total yield is only 0.86%.

Page 1 of 2
Loading Comments...