How QE3 Will Help the Seven Safest Banks in America

Banks are back in favor. The most recently announced round of quantitative easing via mortgage-backed securities purchases from the Federal Reserve follows a ratings action earlier this year in which Moody’s downgraded 15 of the world’s largest banks. Depositors will still worry about which banks are really safe if more trading losses surface after the debacle from J.P. Morgan Chase & Co. (NYSE: JPM) earlier this year, or if QE3 is too little too late to save the economy.

As depositors have to keep their money deposited somewhere, 24/7 Wall St. has revisited its list of the safest banks in America and looked at how QE3 is helping their valuation. The rise in these share prices has been across the board since earlier this summer. The “safest bank” criteria were very strict and it was limited to money-center banks, superregional banks and banks with a retail presence in multiple states.

A bank had to have a minimum market capitalization of $2 billion, it had to be valued at under 14-times expected earnings (based upon Thomson Reuters 2012 consensus estimates) and the price-to-book value had to be less than 2.0. Each bank had to have a minimum return on equity of 8% on the initial screen in June. To demonstrate how confident a candidate bank is, its initial dividend in June had to be at least 2.0%.

We also only chose financial institutions with an investment grade credit rating by the credit ratings agencies. Wall St. analysts still see upside to each of these great banks. Banks with fewer than 100 branch offices were also screened out as their footprint is too small for most Americans to know about the bank. All but one of the banks have a common share price above $10.00 per common share. It is also interesting to see that Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) own shares in many of these banks.

We remained focused on the top 50 banks by assets with a large retail banking presence, so even though the fiduciary banks of State Street Corp. (NYSE: STT) and Bank of New York Mellon Corp. (NYSE: BK) fit our initial screening criteria, they were not included. The “problem banks” like Citigroup Inc. (NYSE: C) and Bank of America Corp. (NYSE: BAC) were not included even though it would seem nearly impossible that depositors would have any risk with them at this time. Regional banks located in the troubled Southeast and Pacific Coast were also screened out for the most part, and we have left out banks that have recently grown the asset base due to mergers and acquisitions. Finally, we absolutely eliminated banks where we had concerns about their viability and survival during another recession.

Here are the seven safest banks in America to deposit money.

1. Wells Fargo & Co.

Wells Fargo & Co. (NYSE: WFC) is still the undisputed safest bank in America now that J.P. Morgan Chase & Co. (NYSE: JPM) remains under question over trading losses. Wells Fargo has branches in almost every state in the United States, with some 6,200 storefront branches and more than 12,000 ATMs. The bank has an asset base of more than $1.3 trillion, and Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) owns what is now over $14 billion worth of the common stock, and that stake keeps rising. QE3 is going to be a boost for Wells Fargo, particularly now that its mortgage underwriting is so large and since it has stopped taking almost all broker-led mortgages. Its assets remain steady at $1.33 trillion. The market cap has grown to a whopping $191 billion. The shares now trade at almost 11-times 2012 expected earnings, up from what was less than 9 times earnings in June. Wells Fargo now trades at 1.27-times book value rather than almost 1.2 times book value back in June. The return on equity is still above 12% and the dividend yield is close to 2.6%. Shares have risen to above $36.00 from $32.50 earlier this summer, and Wall St. values now sees a fair value target of $38.49.

2. JP Morgan Chase & Co.

The ongoing media attention surrounding the London Whale’s multibillion-dollar trading loss has faded since June. That is good for Jamie Dimon, and QE3 is going to help its mortgage issuance. It is even feasible to think that QE3 could finally help the House of Morgan to loosen up just a tad on its mortgage lending standards. The fortress balance sheet of about $2.3 tillion is solid, and QE3 will boost the value of its holdings. Jamie Dimon previously said that the only risk to the bank’s failure is a collision of the earth and moon. Despite the previous share price drop, J.P. Morgan shares have climbed all the way back to above $41.00, and that puts it higher than when the huge loss was disclosed. Its market cap has grown to $157 billion from $135 billion back in June. J.P. Morgan shares trade at about 8.7-times expected earnings rather than under 8-times earnings expectations back in June. Its multiple on book value has grown to 0.82 from only about 0.7 back in June. The return on equity is now about 9.25% since the stock rallied so much. Dividend investors now get a yield of closer to 3.0%, versus what was 3.4% back in June when shares were depressed. Thomson Reuters now values the bank at $45 per share one year out, and that is down marginally from $47 back in June.

Also Read: QE3 Poses Risks for High Dividend Mortgage REITs

3. U.S. Bancorp

U.S. Bancorp (NYSE: USB) is based in Minneapolis and is the fifth-largest commercial bank in the United States. It caters to millions of consumers. U.S. Bancorp has $353 billion in assets, more than 3,000 branch locations, more than 5,000 ATMs and its operations spread out over 25 states. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) lightened up in the last quarter by holding 66 million shares rather than 69 million. The bank’s market cap is has risen to almost $65 billion. It is now worth about 12 times earnings rather than 10 times earnings, and its book value has risen to about 1.7 times versus 1.6 times book value earlier in the summer. The return on equity is very high at 16.5%, and its dividend is about 2.2% for the common holders. Shares are trading around $34.20, versus $31.50 earlier in the summer. Wall St. analysts have a target of about $35.45 on this great safe bank.

4. M&T Bank Corp.

M&T Bank Corp. (NYSE: MTB) is based in Buffalo, N.Y., and now has almost $81 billion in assets. Excluding any small purchases made recently, M&T had nearly 700 branches, 2,000 ATMs and a presence in eight states. The market cap has risen to $11.9 billion from $10.1 billion earlier this summer. Its P/E ratio has risen to about 13.6 from 12.7, and its price-to-book value has risen to 1.24 from 1.07. M&T has a return on equity of 8.15% versus 9.5% earlier this summer, and its dividend yield has fallen from 3.5% to 3.0% due to its share price gain going from just over $80 to about $94 since the early summer. Analysts have set a target price of about $96.77. Berkshire Hathaway Inc. (NYSE: BRK-A) owns almost 5.4 million M&T Bank common shares, worth more than $400 million.

5. PNC Financial Services

PNC Financial Services (NYSE: PNC) is based in Pittsburgh and has almost $300 billion in assets, with more than 2,500 branches and almost 7,000 ATMs in 14 states. It has a market cap of $34.7 billion. Its stock is valued at 11.5 times earnings, rather than 10.6 times earnings in June, and its price-to-book value is 0.94 rather than just under 0.9 times book value from earlier this summer. The return on equity has dropped to 7.4% from about 8.9%, and the company’s dividend yield has fallen to about 2.4% from 2.7%. Shares have risen to almost $66 from $59 earlier this summer, but Wall St.’s price target has risen by not even 1% to almost $71.00. PNC was strong enough financially to close its National City acquisition at the end of 2008 when there was so much risk in the financial markets. PNC owns almost one-fourth of the great asset management firm of BlackRock Inc. (NYSE: BLK).

6. KeyCorp

KeyCorp (NYSE: KEY) is still the one exception to the listed rules as its $8.90 share price is under the $10.00 share price minimum, but that is higher than the $7.50 from earlier this summer. Its other metrics more than make up for this exception. It has a market cap that has risen to $8.4 billion from about $7.1 billion, while its asset base shrank to $86.5 billion from $87.4 billion in the first quarter. KeyCorp operates in 14 states throughout the Rocky Mountain states, Northwest, the Great Lakes and the Northeast. It still seems impressive that KeyCorp is on the list, considering that it is headquartered in Cleveland, where many troubled loans arose. The bank’s return on equity has fallen to 8.8% from 9.2% and the price appreciation has driven its yield down to 2.2% now from 2.7% earlier this summer. The bank trades at 0.83 times book value, putting its value among the cheapest of these safest banks. Analysts still have a target price of $9.00 from Wall St.

7. BOK Financial Corp.

BOK Financial Corp. (NASDAQ: BOKF) is the smallest bank on the list, but its market cap has risen to $4 billion $3.8 billion. Assets are down marginally to $25.57 billion as of the second quarter from $25.88 billion in the first quarter. The bank holding company is based in Tulsa, Ok., and its common branch names in other states are Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. BOK is now worth about 11.7-times earnings, and it is now valued at about 1.4 rather than 1.3 times book value. The return on equity is now 11.9% rather 11.0% earlier in the summer. Its dividend is down to 2.6% from about 2.7%. Shares have risen to $58.70 from about $56.00 earlier this summer and Wall St. analysts have a target above $60.00.

-Jon C. Ogg