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The 10 Banks That Made It --
And the Next Ones to Follow Suit |
[http://www.streetauthority.com/includes/article-top-ao.htm]Published:
June 17, 2009
U.S. officials have said they will allow 10 of the nation's
biggest financial institutions to pay back a total of $68.3 billion of
taxpayer money that the federal government pumped into bank balance
sheets as part of the Troubled Asset Relief Program (TARP).
The Treasury did not release the list of banks as part of today's
announcement, but the banks themselves weren't at all shy about
announcing the news. The move by the Treasury is seen by most industry
watchers as a clean bill of financial health.
The 10 banks will return $68.3 billion to Uncle Sam and all but two of
the 10 are profitable. The market values the eight banks on the list
that are showing a profit at an average 22.8 times earnings, which is
+44% higher than than the five-year average for the Keefe Bruyette &
Woods Bank Index and +54% more than the current P/E of the S&P 500
index.
The 10 banks repaying the TARP funds have seen their shares rise an
average +18.3% since January 1st. The biggest gainer: Morgan Stanley
(NYSE: MS), with a more than +90% rise. U.S. Bancorp (NYSE: USB) was the
laggard. It's one of three companies on the list whose shares are
negative for the year. USB shares are down -27.2% since Jan. 1.
|
Bank |
TARP Funds |
P/E Ratio |
YTD Stock Perf. |
|
J.P. Morgan (JPM) |
$25 billion |
62 |
+12.0% |
|
Goldman Sachs
(GS) |
$10 billion |
31 |
+75.9% |
|
Morgan Stanley
(MS) |
$10 billion |
n/a |
+90.7% |
|
US Bancorp (USB) |
$6.6 billion |
15 |
-27.2% |
|
Capital One |
$3.6 billion |
n/a |
-23.8% |
|
American Express
(AXP) |
$3.4 billion |
14 |
+41.8% |
|
BB&T (BBT) |
$3.1 billion |
9 |
-17.8% |
|
BNY Mellon (BK) |
$3.0 billion |
15 |
+0.42% |
|
State Street (STT) |
$2.0 billion |
12 |
+22.1% |
|
Northern Trust |
$1.6 billion |
24 |
+8.6% |
|
Total or
Average |
$68.3
billion |
22.8 |
+18.27% |
Excluding the banks repaying the Treasury, 17
financial institutions have accepted more than $500 billion in
taxpayer money. Among the largest recipients are Citigroup
(NYSE: C) and Wells Fargo (NYSE: WFC), which received $25
billion in government funds apiece. These 17 institutions
collectively hold nearly $100 billion of Treasury dollars. Only
six are currently profitable; the average stock performance of
these banks, all of which are publicly traded, is a -29.5% loss.
And that's clearly where the upside is.
None of the banks repaying TARP funds with positive returns for
the year are compelling buys: Goldman is up +75%. Do its shares
really have more upside than a still-shaky bank with federal
government support whose shares are off -50% for the year?
No way.
Those 17 banks still hanging on to TARP funds -- every one of
which will ultimately return to profitability -- are where the
financial sector's future gains are going to be. Let's face it,
the market has found most and in some cases all of the upside it
reasonably can expect to find in most of the 10 banks repaying
their TARP funds. Their good news has already been priced in.
The lack of good news is what's holding many of the other bank
issues down.
|
Bank |
TARP Funds Received |
Distance to 52-Week High |
|
Synovous |
$973 million |
+684.8% |
|
Citigroup |
$25 billion |
+591.2% |
|
Popular |
$950 million |
+448.5% |
|
Regions Financial |
$3.5 billion |
+391.3% |
|
Marshall & Ilsey |
$1.7 billion |
+363.9% |
|
SunTrust Banks |
$3.5 billion |
+278.3% |
|
Zions Bancorp |
$1.4 billion |
+276.8% |
|
Keycorp |
$2.5 million |
+234.8% |
|
Bank of America |
$15 billion |
+227.5% |
|
Huntington Bank |
$1.4 billion |
+225.3% |
|
Fifth Third |
$3.4 billion |
+190.9% |
|
Comerica |
$2.25 billion |
+151.3% |
|
Associated Bank |
$530 million |
+132.7% |
|
M&T Bank |
$600 million |
+123.1% |
|
PNC Financial |
$7.7 billion |
+99.3% |
|
Wells Fargo |
$25 billion |
+75.7% |
|
First Horizon |
$866 million |
+32.4% |
My favorites on this list in the table above are in the
highlighted region. That's the sweet spot -- solid banks
that have yet to repay their TARP funds, and still have
plenty of upside.
My take: Overall, the distressed banks mentioned in the
table above are the good buys. The healthy banks are not.
And yet this line of thinking runs counter to most
investors' instincts. Most investors are going to see the
list of winners and assume that they will keep winning.
Now, that might work in the pennant race, but not in the
stock market. And if investors buy any of these "winning"
banks' stock, they will make the mistake most investors
make: They will buy at the high, which means there's nowhere
to go but down.
The time to buy, of course, is when prices are low.
Don't let the market's recent rise off its March lows
convince you there are no great deals out there. You're not
buying "the market," after all. You're buying individual
companies that trade on it.
Let's be clear: There are a lot of good names remaining on
the TARP list: These are major banks with gigantic customer
bases to draw on. And, best of all, they all have backing of
the federal government! The months when we worried, rightly,
about bank failures are over. September 2008, thankfully, is
almost 12 months behind us.
Conventional wisdom holds that the recession is coming to a
close. Wall Street agrees with it. Washington agrees with
it. I agree with it. Even Nobel laureate Paul Krugman --
who's been sulking around wearing a sign saying "The End is
Near" -- now concedes that the economy will shake off the
recession early this fall. Most economic indicators are
showing hopeful signs. Even job losses, which are still
significant, have slowed.
That's all good news for banks. A rising tide lifts all
boats. Sure, some of these banks have a long way to go. But
that's the good news, not the bad news! In fact, some could
rise +500% to +600% before regaining their own 52-week high.
Consider this: Wells Fargo -- in my opinion the strongest
large bank in the country -- hit a low of $7.80 in early
March. It has since gained +226.9% and could gain another
+75.3% before reaching its 52-week high. That would give the
shares a total ebb-to-crest gain of +472.9%. Lots of banks
are going to follow suit. Some are going to do even better.
As each of these banks petition the Treasury to repay their
TARP funds -- which some will admittedly do sooner than
others -- their stock prices will regain lost ground. With
any luck, you didn't ride them all the way down. With a
little more luck, you'll have the sense to ride them all the
way back up. While everyone is paying attention to the TARP
winners, please, please make sure you focus on the losers --
and laugh all the way with these banks.
The TARP paybacks are good news. They show the nation's
economy is healing. They also show that there are a lot of
bargains -- and triple-digit gains -- still to be had.
[http://www.streetauthority.com/includes/editor-profiles-ao.htm]
Disclosure: None
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