Bank of America Corp (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM): Forget the Mega Banks … Go Smaller to Win in Financials

Page 1 of 2

Some four years after the incredible financial collapse in the U.S., much talk has been made about how to prevent such catastrophic events from happening again. While many factors played roles in this calamity over the decade leading to the dramatic climax, the underlying theme was quite pronounced: an over concentration of assets in too few institutions pose unimaginable systemic risks.

Citigroup Inc. (NYSE:C)

This concept became known by the coined term “Too Big To Fail”, and stands as code for those banking firms that are almost assured of government stepping in to rescue them should they stumble. This rather exclusive and infamous club includes the likes of JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), and Citigroup Inc. (NYSE:C).

All of these imposing dons of the money world have dealt with numerous issues since the Great Bailout of ’08, from not being well capitalized and selling off parts of their operations, to being caught in corrupt business practices.

Heat being turned up on Too Big To Fail

Many influential voices have spoken out against the mafia-like untouchable status of the mega-banks. Federal Reserve Governor Daniel Tarullo, Dallas Fed President Richard Fisher, St. Louis Fed President James Bullard, and even Chairman Ben Bernanke himself are on record against any perception that the U.S. taxpayers subsidize their existence and would bail them out once more should they face financial perils.

Clearly there remains a need to address the lingering disease plaguing the country’s banking industry, as both Citigroup Inc. (NYSE:C) and Bank of America Corp (NYSE:BAC) have cannibalized themselves by selling off assets in order to maintain adequate capital ratios, and the well-publicized multi-billion dollar trading loss by J.P. Morgan last spring.

Washington has explored various means to tighten regulations on the “Big Four”, including capping their total size and creating more onerous criteria aimed at discouraging mergers.

Real strength in financials found at the regional level

There is some belief that if the federal oversight could be enforced rigorously enough in combination with strict adherence to new capital requirements, the largest institutions would make the decision to restructure themselves. Until such wisdom prevails on Capitol Hill, investors can look at regional firms in the financial sector to uncover attractive alternatives to the “Money Center Mafia.”

To uncover regional banks that would outshine the largest dons of the finance world, I focused on the following criteria:

Return on Equity (ROE) of 10% +

Operating Margin of 30% +

Beta of 0.80 or less

Dividend Yield of 1.5% +

Minimum three month average volume of 5000 shares traded

From these statistical factors, you find three institutions that standout. Penns Woods Bancorp, Inc. (NASDAQ:PWOD) of Williamsport, PA is the holding company of Jersey Shore State Bank. Penns Woods is the best of the bunch in this analysis with an ROE of 15.90%. The operating margin of 44.74% shows incredible efficiency in their business model. The firm has been noted by Forbes as a “Top Dividend Stock” based on the 4.6% dividend and insider purchases by the bank’s leadership. Penns Woods has almost 25% less volatility than the general market with a beta of 0.76.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!