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Citigroup Inc (C), Goldman Sachs Group, Inc. (GS) & JPMorgan Chase & Co. (JPM): Banks Have Their Eyes Set on the Future

Bank results are a good proxy of what might be happening in the economy. Signs of an economy that is improving such as more M&A deals, more loans and fewer defaults are also the drivers of much better top and bottom line results at banking institutions. Here I will analyze the last earning results of three key U.S. banks and set some insights about the future.

Steady rise back to the top

Citigroup Inc (NYSE:C)The overall picture emerging from Citigroup Inc (NYSE:C)‘s current earnings report is one of margin stability and bottom-line profitability. The key revenue and expense lines were all close to expectations (EPS came at $1.34, beating the street’s $1.18 estimate). Tangible book value grew and credit trends continued to improve in the U.S. and were stable in emerging markets, where Citigroup Inc (NYSE:C) makes 43% of its revenues and 49% of its earnings.
The wind-down of Citigroup Inc (NYSE:C)-holdings continues at a steady pace with a $16 billion decline in assets to $131 billion, or 7% of total assets. Management implied that they expect current reserves to cover most of the losses in the mortgage book and non performing loans to continue their decline at ever faster rates. Citigroup Inc (NYSE:C) is one of my favorite large capitalization banks. With a dividend ready to rise from the currently negligible levels and accumulating capital fast (the bank’s Bassel 3 tier one common ratio is at 10%), I think Citigroup Inc (NYSE:C) is a good long for any large portfolio. The bank trades at 97% tangible book value and 11 times P/E.

The king of Wall Street is coming back

Goldman Sachs Group, Inc. (NYSE:GS) is indeed coming back to the best of its practices, generating great returns. The bank reported second quarter EPS of $3.70, well ahead of expectations ($2.87). This quarter’s up-side was largely top-line driven by Investing & Lending and Investment Banking results. Strong top line, which came up by 30% year-over-year, was not the only reason for Goldman’s out-performance. Exceptional expense and capital management was also a major factor. Going forward, I see core capital (Tier 1 common ratio increased to 13.5%) to continue rising from the current levels without affecting profitability ratios.

Following a quarter of strong buy-back activity (the bank bought 10.5 million shares) and a growing dividend (Goldman pays a 1.23% cash dividend yield), I think Goldman should be at any large capitalization banking portfolio. The bank has a unique investment banking franchise and solid balance sheet. Goldman trades at 1.1 times tangible book value and 11.5 times P/E.

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