Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Wells Fargo & Co (WFC): Banking On, Well, Banking

Citigroup Inc (NYSE:C)One of the great turnaround stories that’s still taking shape is Citigroup Inc. (NYSE:C). With all the talk surrounding the mixed results of the housing market and the auto industry in full-fledged rebound mode, much of the spotlight has been taken off the financials. I plan to re-aim this spotlight.

Before the financial crisis, Citigroup Inc. (NYSE:C) traded at a premium to both JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC) on a price-to-book basis; now the company trades at a steep discount to JPMorgan Chase & Co. (NYSE:JPM) and inline with Bank of America Corp (NYSE:BAC).

I think Citigroup Inc. (NYSE:C) is still in full turnaround mode and presents investors the best upside of all the major banks. The bank should trade more inline with JPMorgan and other top banks over the long term.

JPMorgan Chase & Co. (NYSE:JPM) is one of the top-three banks by assets. In March, the Fed approved the company’s capital deployment plan. JPMorgan now has a $6 billion stock- repurchase program in place.

JPMorgan Chase & Co. (NYSE:JPM) is also slashing jobs to boost profitability. The bank will eliminate 19,000 jobs by the end of 2014. With the help of job cuts, the bank is calling for net income of $27.5 billion in 2014.

Revenue is expected to be up 2% in 2013, after flat revenue growth in 2012. The top line is expected to be weak due to lower trading revenue. Earlier this month, the bank posted 2Q EPS of $1.60 versus $1.21 for the same period last year. Yet, total loans remained flat year-over-year, with the net interest margin falling. So, the bank is still seeing modest growth, but not enough to justify a premium to Citi.

The mortgage bank

Wells Fargo & Co (NYSE:WFC) is still the U.S.’ leading bank for mortgages. The company got a nice uptick in earnings and loan volume related to mortgage refinancing, but as this market cools, so should Wells Fargo.

Wells Fargo & Co (NYSE:WFC) has a target return on assets of 1.3% to 1.6% and return on equity of 12% to 15%. As well, the bank is looking to international markets to help boost its business model, specifically in the asset management sector.

Wells Fargo & Co (NYSE:WFC) has also implemented various expense management initiatives. These have started yielding results. The bank’s efficiency ratio during 1Q 2013 was 58.3%, which is in its long-term target range of 55% to 59%. While Wells Fargo & Co (NYSE:WFC) does pay a 2.7% dividend yield and is making strides to decrease its mortgage banking exposure, its valuation is quite unappealing, trading at 1.5 times book value, well above JPMorgan Chase & Co. (NYSE:JPM).

Bottom feeding

While back in 2009, Bank of America traded close to $3 per share and Citi fell from its $550 price tag in 2007 to trade at $10, that’s no longer the case. But I believe there is still inherent turnaround value in Citigroup Inc. (NYSE:C).

Citi posted June-ended quarterly results of $1.34 per share, compared to $0.95 for the same quarter last year and on the back of an 11% rise in revenue. Citi also got a thumbs up on its stress-test results, allowing the bank to initiate a $1.2 billion in share repurchases through the first quarter of 2014.

Citigroup Inc. (NYSE:C) gets the majority of its revenue from outside the U.S., with operations in over 160 countries and its balance sheet appears strong. Citi’s loss allowance is over $20 billion, which is over 200% of non-accrual loans.

Between the two major unloved banks, Citi is head and shoulders above Bank of America Corp (NYSE:BAC) on return on equity and return on assets…

I like Citigroup Inc. (NYSE:C) the best of the major banks, believing it has the most room to run over the long-term. JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) have ran up too much for me to be excited about.

The article Banking On, Well, Banking originally appeared on and is written by Marshall Hargrave.

Marshall Hargrave is long Citigroup. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup Inc (NYSE:C) , JPMorgan Chase & Co (NYSE:JPM)., and Wells Fargo. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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