It never fails when we have a crisis in America. The tendency for the governing or regulating bodies isn’t to try to get things from over-exuberant back to the mean, it’s to over-regulate, so it can never ever happen again. While that always seems like a good solution at the time, it is usually so stifling that in the normal course of events, transactions and business can be bottlenecked for years.
A new Merrill Lynch research report makes the case that some regulatory relief is possibly on the way, and the resignation in April of this year of Fed Governor Daniel Tarullo, who is said to be the de facto head of bank supervision, could pave the way for an improved administration of the Comprehensive Capital Analysis and Review (CCAR) process. The analysts also feel this could free up some of the tremendous amount of capital the banks are forced to hold. In fact, they estimate that there is as much a $230 billion in what they call “dead weight” capital from the CCAR process.
While two banks immediately hit the Merrill Lynch screens as possible winners from the rules changes, only one is ranked Buy at the firm. We suspect this would to a large degree help all banks, so we screened the Merrill Lynch research database for the large money center banks also rated Buy.
This is one of the banks that Merrill Lynch feels could benefit among the most if the CCAR is modified. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.
Trading at a still very cheap 10.9 times estimated 2018 earnings, this company still looks very reasonable in what is becoming a pricey stock market. A continuing stock buyback program at the bank is a positive, which could be increased if some of the restrictions were relaxed. While fourth-quarter results were generally in line with estimates, management was conservative looking forward and some were disappointed.
Citigroup investors receive a 1.2% dividend. The Merrill Lynch price target for the stock is $64. The Wall Street consensus price objective is $64.61. Shares closed most recently at $59.90.
This stock trades at a still low 11.8 times estimated 2018 forward earnings and could respond good in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is expected to continue to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on estimated price-to-earnings and a very solid price-to-book value. Some on Wall Street have cautioned that last year’s divestiture of the physical commodities business could provide earnings headwind going forward.
With $2.6 trillion in assets on a worldwide basis, and one of Wall Street’s savviest leaders in Jamie Dimon, the stock is a solid buy for investors. Last year, Dimon put his money where his mouth was and bought a stunning 500,000 shares of the stock for a massive $26 million.
The company reported solid fourth-quarter results that came in a touch above estimates. The analysts feel the company is able to take advantage of revenue opportunities while still improving efficiency. The firm’s forward estimates are above current Wall Street expectations.
JPMorgan investors receive a 2.5% dividend. Merrill Lynch has a $95 price target, and the consensus target is $89.21. The shares closed Monday at $88.24.