Focus on Bank Book Value Per Share Ahead of Q3 Earnings Season

The big banks are going to be rather important to watch this earnings season for the third quarter of 2012 as shares have risen handily from their lows. While banks almost never offer guidance during their earnings, investors often pay keen attention to book values reported by each bank. It used to be that book value was a floor, but for some of the large banks and even for some of the safest banks the book value yardstick now acts as a ceiling. The reason is not so much that the numbers are unbelievable, but more so because the future earnings power of the banking sector is deemed to be so low in the current interest rate and regulatory environment.

24/7 Wall St. wanted to take a look at each of the largest banks and the seven safest banks in America to see how the investment community sees each one with consensus price targets from Thomson Reuters. We have added color on each and shown whether book value comparisons should be used for a floor or a ceiling.

BOK Financial Corporation (NASDAQ: BOKF) was the smallest bank on the list of our safest banks with a market cap now of about $4 billion. The bank still has some $26 billion in assets and is based in Tulsa, Oklahoma. The bank holding company is known in major cities by the branch names of 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. With shares at $59.00 its 52-week trading range is $46.71 to $60.00 and the consensus analyst target is $61.14. The bank trades at a large premium against its June 30 book value of $42.35 per share as its capital ratios have been so high that the bank exceeded the regulatory definition of well capitalized.

JP Morgan Chase & Co. (NYSE: JPM) remains a key safe bank in America whether the trading losses crept up or not. Unfortunately, those trading losses highlight more risk and that puts the book value at an implied ceiling now rather than a floor. This quarter will show the final tally for the losses surrounding the London Whale but the bank has a fortress balance sheet with some $2.3 trillion in assets. It is important to know that at $41.50 against a 52-week trading range of $28.28 to $46.49, shares are now back to worth more than when those giant losses were made public. Warren Buffett once disclosed that he personally owned shares of J.P. Morgan Chase but that is not the case for Berkshire Hathaway itself. This giant bank had a book value of $48.40 per share at the end of June.

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KeyCorp (NYSE: KEY) was an exception on the list of safest banks as its share price had been under $10.00, but its other metrics made up for it. With operations in 14 states, it was impressive that KeyCorp is on the list when you consider that it is headquartered in Cleveland, Ohio where many troubled loans arose ahead of and through the recession. The current share price of $8.75 generates a market cap of more than $8.2 billion and the share price is against a 52-week range of $6.21 to $9.12. KeyCorp’s book value was listed as $10.37 per share as of June 30. Investors still want to treat the book value as a ceiling here.

M&T Bank Corporation (NYSE: MTB) is based in Buffalo, N.Y., and now has more than $79 billion in assets and is a top 20 commercial bank with over 700 branches and over 2,000 ATMs. With shares at $98.00, the 52-week range is $67.23 to $98.99 and Wall Street analysts have a consensus price target of $98.64 ahead of earnings season. We had an implied book value of $69.23 per common share for M&T. Berkshire Hathaway Inc. (NYSE: BRK-A) owns almost 5.4 million M&T Bank common shares worth close to $540 million.

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 billion based upon a share price of $64.35. Analysts have a consensus price target of $about $71.80 here and the 52-week trading has been $48.80 to $67.89. 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) and its June 30 book value was listed as $64.00 per common share.

U.S. Bancorp (NYSE: USB) is often overlooked as a money-center bank because it is a super-regional located in Minneapolis. It is actually the fifth-largest commercial bank in the U.S. and caters to millions of consumers. It has more than $340 billion in assets, more than 3,000 branch locations, more than 5,000 ATMs and its operations spread out over 25 states in America. With its shares at $34.75, its market value is almost $66 billion and its 52-week trading range is $23.54 to $35.46. The bank’s book value was listed as $17.45 per share as of June 30. Berkshire Hathaway Inc. (NYSE: BRK-B) owns some 66 million shares worth close to $2.3 billion.

Wells Fargo & Company (NYSE: WFC) is now the undisputed safest bank in America of the big money-center banks now that JP Morgan Chase & Co. (NYSE: JPM) stumbled after such large trading losses. Wells Fargo shares is worth almost $190 billion and shares are now nearly at $36.00 against a 52-week trading range of $23.19 to $36.60. Wells Fargo now trades at an even larger premium to its book value of $26.06 but Wall Street analysts have a consensus price target of almost $39.00 on the banking giant. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) keeps buying more and more shares here and the Berkshire stake is now known to be worth close to $14.2 billion.

Two large money-center banks which did not make the list of “safest banks” might be considered among the winners because the banks are realistically too big to fail. These are Bank of America Corporation (NYSE: BAC) and Citigroup Inc. (NYSE: C). Book value, or even tangible book value, represents a ceiling for now in these banks as they cannot pay higher dividends and are still under Treasury supervision more than the other money-center banks. The key levels to watch are as follows:

• BofA trades around $9.25 with a 52-week range of $4.92 to $10.10 and with a consensus analyst target of $9.45. Its June 30 balance sheet represented tangible book value of $13.22 and a stated book value of $20.16 per share.
• Citi trades around $34.70 with a 52-week range of $23.30 to $38.40 with a consensus analyst target of $40.20. Its June 30 balance sheet showed a tangible book value $51.81 and a stated book value of $62.61 per share.

JON C. OGG