American Express beat its estimates for the fourth quarter but shares went down from rising loan loss provisions and as its revenues were short of plan.  AmEx managed to grow expenses at a slower rate to help its beat earnings expectations.  The company increased its provision for loan losses with some $409 million.  AmEx serves mostly higher credit customers.

Capital One serves the masses with its credit cards and few branches, but it also managed to have soft earnings as non-interest expenses and its sales and marketing costs rose.  Earnings were down to $0.88 per share, down from $1.52 in the fourth quarter a year earlier and under the consensus analyst estimate of $1.56. Capital One’s non-interest expenses rose to $2.62 billion from $2.09 billion in the year earlier.  Expenses of $2.0 to $2.5 billion are also apparently higher than what many analysts were expecting. It is important to keep in mind that Capital One has two major acquisitions which should close during the first half of this year.

AmEx ended up only losing a couple percent on Friday and its shares are up only marginally with a gain of $0.04 to $50.08; Capital One shares are up $0.16 at $46.19 after closing down about 5.6% on Friday.

JON C. OGG

We have compiled basic earnings previews and shown Thomson Reuters estimates from the following: Goldman Sachs Group Inc. (NYSE: GS); State Street Corporation (NYSE: STT); Bank Of New York Mellon Corp. (NYSE: BK); U.S. Bancorp (NYSE: USB); Northern Trust Corporation (NASDAQ: NTRS); American Express Co. (NYSE: AXP); Bank of America Corporation (NYSE: BAC); Morgan Stanley (NYSE: MS); and Capital One Financial Corporation (NYSE: COF).

Goldman Sachs Group Inc. (NYSE: GS) is set to report earnings on Wednesday morning and the earnings estimates have been coming down more than just marginally ahead of the expected earnings report.  It is no longer expected to have the name “Golden Slacks” attached as a nickname right now.  The current target is $1.24 EPS on $6.54 billion in sales, but the earnings targets were above $2.00 EPS recently and the street expected almost $3.00 just about 90 days ago.

State Street Corporation (NYSE: STT) is set to report earnings on Wednesday morning and the consensus estimate for the trust and custodial bank is expected to rise about 8% to $0.94 EPS.  Bank Of New York Mellon Corp. (NYSE: BK) is set to report earnings on Wednesday morning and the earnings estimates are $0.53 EPS and $3.75 billion in revenues.  We will be waiting to see if any of the charges to trust and custodial customers taking the cash holdings operations to a cost rather than as an interest bearing account will have made a difference.  That seems to have gone away but it may have just been lost in the shuffle.

U.S. Bancorp (NYSE: USB) is expected to report earnings on Wednesday morning.  The estimates are $0.63 EPS on $4.76 billion in sales.  Northern Trust Corporation (NASDAQ: NTRS) is also due Wednesday morning and estimates are $0.68 EPS and $972.3 million.

American Express Co. (NYSE: AXP) is due on Thursday after the close and earnings estimates are $0.98 EPS and $7.92 billion in sales.  As with the rest of the lenders and credit cards, we expect to hear continued improvements in credit metrics regarding the customer base.

Bank of America Corporation (NYSE: BAC) is due to report on Thursday morning.  The most unpopular of the big ‘too big to fail’ money-center banks in America, has a consensus earnings estimate of $0.23 EPS on $24.08 billion in revenues.  This has been the best DJIA stock so far in 2012 even including the last two trading sessions.  It is a bit more than just interesting that earnings estimates have ratcheted higher over the last ten days when estimates elsewhere have been cut so much in banking.  The huge discount to book value is again likely to be less material than in years passed.

Morgan Stanley (NYSE: MS) is set to report on Thursday morning as well.  Long gone is worrying about the relative book value and long gone is the comparison to Goldman Sachs.  Estimates are for a loss at -$0.57 EPS and $5.57 billion in revenues.

Capital One Financial Corporation (NYSE: COF) is due to report earning on Thursday and this is the credit card bank “for the rest of America.”  The earnings report could be wildly far off of estimates because the bank is in the process of acquisitions which could greatly skew the headline numbers.  A fresh SEC filing showed that monthly data showed a continued improvement in default rates and in late payments in December. The consensus estimate is $1.55 EPS and $4.08 billion in sales.

JON C. OGG

We will be paying extra attention to the money center banks of Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), and Wells Fargo & Co. (NYSE: WFC); and then there are the “bankless bank holding companies” of Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) to consider as rival trading outfits.  Then there is also American Express Co. (NYSE: AXP) with much of the same client base as Chase Banks and then the more mainstream Capital One Financial Corporation (NYSE: COF) to consider as well. On the trust bank side and fiduciary side, there is Bank of New York Mellon Corporation (NYSE: BK) and State Street Corporation (NYSE: STT).

We have added in color on each group as well as shown trading ranges, implied price targets, and the implied discounts to the stated book values.

J.P. Morgan Chase & Co. (NYSE: JPM) is the best of the large diversified money center banks to most investors and it still trades at 0.76-times its stated book value.  The stock is at $36.35, the 52-week range is $27.85 to $48.36, and the consensus analyst price target objective is $46.29. Thomson Reuters has estimates of $0.91 EPS and $23.05 billion in revenues for the quarter.  Keep in mind that estimates have ticked lower almost each week during the last quarter.

Bank of America Corp. (NYSE: BAC) was recently listed as being at well under 0.5-times book value, but the stock has been the top performing DJIA stock.  With shares at $6.87, the 52-week range is $4.92 to $15.31. The consensus target is $9.02.

Citigroup Inc. (NYSE: C) was recently about 0.52-times stated book value. Shares are trading around $31.27 with a 52-week range of $21.40 to $51.50 and the consensus price target is $41.98.

Wells Fargo & Co. (NYSE: WFC) was recently trading at 1.1-times book value, making Warren Buffett’s favorite bank stock the only of the money center banks not at a discount to its stated book value.  That is partly because the new trading rules and regulations are believed to have the least impact on it out of the money center banks.  Shares are trading around $29.62 with a 52-week range of $22.58 to $34.25 and the consensus price target is $32.37.

Goldman Sachs Group Inc. (NYSE: GS) trades at about 0.7-times its stated book value and some now expect a loss when it reports earnings.  At $99.76, the 52-week range is $84.27 to $175.34 and the consensus price target is $128.80.

Morgan Stanley (NYSE: MS) trades at a steep discount even to Goldman Sachs with a price/book ratio of only about 0.52-times stated book.  Shares trade at $17.10 and the 52-week trading range is $11.58 to $31.04.  The consensus price target is currently about $21.80.

American Express Co. (NYSE: AXP) is not at a discount to book value at all at 3.19-times book value because it is classified in such a different manner.  Shares are trading at $48.95, the 52-week range is $41.30 to $53.80, and the consensus price target is $56.63.

Capital One Financial Corporation (NYSE: COF) may not be accurate on book because of the acquisitions and changes there.  It is stated as being 0.75-times its stated book value.  Shares trade at $47.71, the 52-week range is $35.94 to $56.26, and the consensus price target is $56.85.

Bank of New York Mellon Corporation (NYSE: BK) trades at 0.77-times its stated book value at the custodial and fiduciary bank. Shares are at $21.50, the 52-week range is $17.10 to $32.50, and it has a price target of $25.33.

State Street Corporation (NYSE: STT) is at a premium of 1.08-times its stated book value for the custodial bank.  State Street;s stock is at $43.05, its 52-week range is $29.86 to $50.26, and the consensus price target is $47.36.

Price-to-book and price-to-earnings data provided by Finviz.com, consensus price target (mean target) provided by Thomson Reuters.

Many estimates have been trimmed by analysts of late for the banks and financials.  We still expect modest credit metric improvements in most of the big banks and more importantly expect improvements in customer credit metrics to have improved again.  The difference this quarter is that there should be a tick up in loan demand actually being met by the banks, but don’t expect any huge gains there.

Before you get too excited about the discounts to book value, this may still be more of a ceiling rather than a floor.  Cash may have to be paid out in settlements, carrying cash balances yields literally nothing, and many banking operations remain in a state of muted flux.

Lastly, look for this to impact the wild triple-leverage ETF of the Direxion Financial Bull 3X Shares (NYSE: FAS), but watch the tracking error when the markets are not open.

JON C. OGG

According to the CardHub report, combined debt and charge-offs rose $16.82 billion in the quarter. The US Federal Reserve’s consumer credit report, which was issued yesterday, noted a drop in revolving credit outstanding of -2%. The Fed’s numbers, however, do not include charge-offs of $10.94 billion that are included in the CardHub numbers.

The Federal Reserve’s report shows that non-revolving debt, such as student loans and auto loans, increased by $7.3 billion. Total outstanding consumer debt according to the Fed is $2.457 trillion in October.

CardHub reports that the charge-off rate for credit card debt rose slightly, from 5.58% in the second quarter of 2011 to 5.63% in the third quarter.

There are two troubling aspects to the third quarter report according to CardHub:

While it is common for consumers to end the first quarter of each year with a significant net decrease in credit card debt and subsequently wipe out this reduction throughout the rest of the year, the speed at which consumers are garnering new debt in 2011 is unprecedented.  More specifically, this is the first time in the last two years that a Q1 pay down has been completely eradicated by the end of Q3.

Additionally, in both 2009 and 2010, consumers added more new debt in Q4 than in Q2 and Q3 combined.  If this is any indication for what Q4 2011 has in store, consumers are certainly headed down a dangerous path.  As a result, Card Hub revised upward the year-end credit card debt projection it made earlier this year from $54 billion to $64 billion.

Shopper surveys indicate that consumers plan to spend more this holiday season than they did last year. While that is good news for retailers and for the economy in general, it could be setting up a new round of consumers over-extending themselves, but this time without housing price increases to soak up the new debt.

If consumers’ confidence is rising, that’s a good thing, but if the rise is based on increases in home values and the belief that their jobs are secure, that could be a pretty shaky foundation upon which to increase debt given the overall weakness in both the US and global economies.

It still feels as though calculating a bank’s book value is a bit like calculating the cash per share of an emerging biotech that just experienced an implosion due to a poor drug candidate’s test result. The value may be eroded through time.  Now that earnings season has passed. 24/7 Wall St. has run a screen of the money-center banks, large broker-dealers, and super-regional banks trading at or under book value from the last quarter under the FinViz screen.

J.P. Morgan Chase & Co. (NYSE: JPM) now trades around $25.30 and its October earning’s book value was listed as $45.93 per share, up from $44.77 one quarter earlier and versus $42.29 a year earlier.

Bank of America Corporation (NYSE: BAC) is almost embarrassing, or actually it is embarrassing.  After a 2% drop to $5.36 today, BofA’s tangible book value per share in October was $13.22 versus $12.91 a year earlier and compared to $12.65 in the second quarter.  The stated book value per share was $20.80 in the third quarter, down from $21.17 a year earlier and up from $20.29 in the second quarter of 2011.

Citigroup, Inc. (NYSE: C) is another large discount to book value and the $24.60 price compared to a stated book value $60.56 per share and a tangible book value per share of$49.50.

Wells Fargo & Company (NYSE: WFC), Warren Buffett’s favorite bank, used to trade at a premium to book value but that now trades at 0.93-times its most recently stated book value.

A screen at FinViz gave some key banks that are large and well-known institutions, some of which have no exposure to Europe and/or the PIIGS to speak of, which are trading at a discount to their stated book value.  Others screened from FinViz are as follows, and these banks are all expected to be profitable on an operations basis ahead:

The trust and fiduciary banks are also at discounts.  BB&T Corp. (NYSE: BBT) trades at 0.88-times its latest book value.  The Bank of New York Mellon Corporation (NYSE: BK) trades at 0.66-times its latest book value. 

Other regional and large banking outfits are at large discounts too… Capital One Financial Corp. (NYSE: COF) trades at 0.64-times its latest book value.  Fifth Third Bancorp (NYSE: FITB) trades at 0.81-times its latest book value.  The Goldman Sachs Group, Inc. (NYSE: GS) trades at 0.64-times its latest book value.  Morgan Stanley (NYSE: MS) trades at 0.64-times its latest book value.  Jefferies Group, Inc. (NYSE: JEF) is just about to have a quarter-end but it trades at 0.64-times its latest book value.  PNC Financial Services Group Inc. (NYSE: PNC) trades at 0.78-times its latest book value.  SunTrust Banks, Inc. (NYSE: STI) trades at 0.47-times its latest book value.

As a reminder, our take is that even if the market were to suddenly recover, tangible book values would be the first line to watch and stated book value would be much later after that.  The book value game is one that looks and feels shockingly cheap today because the sector’s earnings power is being challenged each and every day.  Until the climate moves beyond winding down prop-trading, not going for many loans, not being able to earn money in the short-term and intermediate-term fixed income markets, and a climate where these are sued over and over for actions of yesteryear and with the regulators running the banks.
 
Value investors and investors screening for “cheap stocks” still need to look elsewhere, unless they know how to model worst case scenarios for about a year or two out from today or if they think they can quantify the regulatory, legal, and operating restriction-adjusted earnings ahead.

JON C. OGG

BANK STAKE GAINS: Bank of America Corporation (NYSE: BAC) was listed as a larger position at 64.3+ million shares, higher by almost 4 million shares.  Keep in mind that there are also positions in warrants due 2018 and 2019 in the position at BofA.  Capital One Financial Corporation (NYSE: COF) was raised slightly to 22,200,000 shares worth $879.7 million, but the old stake of 21,100,000 shares worth $1.09 billion. 

BANK STAKES LOWERED OR ELIMINATED (partial): Citigroup Inc. (NYSE: C) was a much lower stake at 25.1 million shares worth $643 million versus a stake of 33.5 million shares worth some $1.395 billion a quarter earlier.  J. P. Morgan Chase & Co. (NYSE: JPM) was not even listed as a position, yet it was about 4.7 million shares at the June 30 report ( but there is still a warrant position).  Wells Fargo & Co. (NYSE: WFC) is a lower position of 23,847,900 shares worth $575 million versus the prior position of 33,600,000 shares worth $942 million. XL Group plc (NYSE: XL) was lowered as well to 23.675 million shares worth $445 million versus his previous larger position of 28.23 million shares worth $620 million. NYSE Euronext, Inc. (NYSE: NYX) was dropped from the positions entirely after being listed as 3 million shares a quarter before.

PAULSON’s OTHER LOWERED POSITIONS (partial): SPDR Gold Trust (NYSE: GLD) was cut by more than one-third down to 20,273,540 shares (now worth $3.2 billion) versus 31,500,000 shares worth nearly $4.6 billion previously. Teva Pharmaceutical Industries (NASDAQ: TEVA) was cut by more than half to 1,976,900 shares worth $73.5 million from 4.18 million shares worth $201 million.  The stakes in FAMILY DOLLAR STORES INC. (NYSE: FDO) and the stake in MGM RESORTS INTERNATIONAL (NYSE: MGM) were also lowered by Paulson.  Hewlett-Packard Co. (NYSE: HPQ) was lowered to 15.2 million shares worth $340 million from 23.5 million shares worth $855 million a quarter earlier.

PAULSON’s NEW POSTIONS:  AMC Networks Inc. (NASDAQ: AMCX) is a new position of 5,000,000 shares worth $159 million, making Paulson a zombie fan for The Walking Dead.  Cephalon Inc. (NASDAQ: CEPH) is a new position of 3,684,000 shares worth some $297 million.  Covidien PLC (NYSE: COV) is a new position of 2,000,000 shares with some $88.2 million.  CVS Caremark Corporation (NYSE: CVS) was another new position of 2,500,000 shares worth almost $84 million.

Mylan, Inc. (NASDAQ: MYL) was a higher stake of 24,896,500 shares worth $423 million versus 14,940,000 shares worth $368 million previously.

Fortunately for Mr. Paulson, the markets have recovered handily since the end of September and the start of October.

JON C. OGG

Other card issuers pretty much set the stage for Mastercard. Visa Inc. (NYSE: V) reported EPS of $1.27 on revenue of $2.38 billion, beating expected EPS and narrowly missing revenue estimates. A week earlier, American Express Co. (NYSE: AXP) posted EPS of $1.03, topping estimates of $0.96. Both Visa and American Express noted transaction growth and higher consumer spending. Capital One Financial Corp. (NYSE: COF) also beat EPS and revenue estimates in the third quarter. Discover Financial Services (NYSE: DFS) winds up its 2011 fiscal year this month, and is expected to report EPS of $0.91 on revenue of $1.81 billion.

Credit card lenders including American Express, Capital One, Discover, and banks like Bank of America Corp. (NYSE: BAC), JP Morgan Chase & Co. (NYSE: JPM), and Citigroup Inc. (NYSE: C) reported a slight rise in delinquencies for September although write-offs fell. American Express’s delinquency rate rose from 1.4% in August to 1.5%, but write-offs fell from 2.7% to 2.4%. Capital One’s delinquency rate rose from 3.43% to 3.65%, while write-offs fell from 4.1% to 3.9%.  Discover’s delinquency rate rose fractionally, and its write-off rate fell from 3.6% to 3.17%. The banks followed the pattern, but write-off rates are higher, with BofA at 5.99%, Chase at 4.13%, and Citi at 5.87%.

The concern is that the uptick in credit card use will lead to a similar uptick in delinquencies and defaults. Credit card use far outstripped debit card use last quarter, indicating either that consumers didn’t have the cash or that they were voting against the threatened imposition of fees for debit card use.

High unemployment and stagnant wages are the likeliest causes of the increase in credit card use. Now that the holiday season is truly with us, consumers will be spending more and it’s not much of a stretch to believe that credit cards will play a significant role in that spending. Paying the bills will come later.

For Mastercard and Visa, neither of which is exposed to non-payment of credit card bills, delinquencies and defaults may take a longer time to affect earnings, but if banks are forced to tighten requirements, fewer credit and debit cards will be issued and the transaction companies will feel the pinch.

Mastercard shares are up about 8% in the first hour of trading this morning, at $361.36, in a 52-week range of $215.00-$364.80. Visa shares are up more than 2.5%, at $92.34, in a 52-week range of $66.50-$95.87. American Express stock is up more than 2.5% as well, at $50.23, in a 52-week range of $41.25-$53.80. Discover shares are up nearly 2%, at $23.30, in a 52-week range of $17.84-$$27.92.

Paul Ausick

We have detailed previews for the following companies: AT&T Inc. (NYSE: T); Microsoft Corporation (NASDAQ: MSFT); Capital One Financial Corporation (NYSE: COF); Chipotle Mexican Grill Inc. (NYSE: CMG); Philip Morris International Inc. (NYSE: PM); General Electric Co. (NYSE: GE); Honeywell International (NYSE: HON); McDonald’s Corporation (NYSE: MCD); and Verizon Communications Inc. (NYSE: VZ).

Consensus estimates and the consensus analyst price targets have been compiled from Thomson Reuters.

Thursday, October 20

AT&T is due Thursday morning and Thomson Reuters has estimates for the DJIA component of $0.61 EPS and $31.62 billion in revenues; next quarter estimates are $0.58 EPS and $31.72 billion in revenue. Shares are trading around $29.15, its 52-week trading range is $27.20 to $31.94 and analysts have a consensus price target of $32.33. With the current bias being against approval of the T-Mobile operations, we will be looking for guidance on that front. Other than that, investors have close to a 6% dividend yield.

Microsoft is due Thursday afternoon and Thomson Reuters has estimates for the DJIA component of $0.68 EPS and $17.25 billion in revenues; next quarter estimates are $0.84 EPS and $21.21 billion in revenue. Shares are trading around $27.15, its 52-week trading range is $23.65 to $29.46 and analysts have a consensus price target of $31.90. The dividend is now close to 3% but investors are still concerned about the PC market causing a slower upgrade cycle for Windows. The only hope is now that Intel offered enough of a PC-market buffer.

Some smaller large company reports to watch on Thursday are as follows:

Capital One Financial shares hit a 5-day low on Wednesday on worries of slower payments on credit cards in September and estimates are $1.68 EPS on $4.05 billion in sales. Keep in mind that it has been making acquisitions and that may alter the future of the company.

Chipotle Mexican Grill has been such a high flying stock that many traders are watching it as “the Apple of fast food.” Estimates are $1.85 EPS and $583.1 million, for the next quarter the estimates are $1.85 EPS and $584.45 million in sales.

While high unemployment and lower confidence due to Europe and Asia have weighed on what investors expect out of credit cards, J.P. Morgan’s credit card metrics seem to be a boost for other credit card outfits.  The highest credit quality bank showed that the loss rates in the credit card area was under 4.4%, down more than 3 and a half points from a year earlier and down almost a full point from the second quarter’s 5.3%.  The delinquencies of 30 days or more fell to 2.64% versus 2.73% in the second quarter and from 4.1% a year earlier.  The bank also noted higher spending of 10% from a year earlier and 2% from the second quarter.

American Express Co. (NYSE: AXP) is still down 1.3% at $46.40, but that is far better than the near-6% drop in J.P. Morgan shares today.  Capital One Financial Corporation (NYSE: COF) is down almost 4% today at $41.73, something that is a bit of a surprise considering how deep it is into credit cards.

Visa Inc. (NYSE: V) and Mastercard Inc. (NYSE: MA) are both up on the day as the spending and credit metrics trends are looking solid.  Visa shares are up 1.2% at $92.20 and Mastercard shares are up over 3% at $338.50.  These two stocks are even higher after a price-fixing case was brought against them by an ATM trade group.

We would have assumed that payment solutions provider VeriFone Systems, Inc. (NYSE: PAY) would have been higher as well, but its shares are down just over 3% at $38.28.

JON C. OGG

J.P. Morgan Chase & Co. (NYSE: JPM) will lead off the banks as far as earnings season.  It is likely that book value here grew or did not fall much and we will be paying attention to Jamie Dimon’s comments on how his internal customers’ credit metrics came out in Q3.  Jamie Dimon showed that book value was listed as $44.77 versus $43.34 the first quarter and versus $40.99 a year earlier.  If Chase is the best quality of the money-center banks that there is, then a $33 handle today generates close to 0.75-times book value.  

Bank of America Corporation (NYSE: BAC) noted in July that tangible book value per share was $12.65, down from $13.21 in the first quarter of 2011 and up from $12.14 in the second quarter of 2010.  Its stated book value per share was listed as $20.29 as of June 30, down from $21.15 in the first quarter and down from $21.45 in the same period of 2010.  Shares are trading under $6.50 today.  The trick is not that Bank of America is lying about the book value today.  We think that the number was actually true based upon a snapshot in time, but the issue is that the street cannot figure out how to model its mortgage exposure and lawsuit exposure and what that does to the book value a year or two out.  What if regulators move to press for a break-up of if the company remains under pressure for the long-haul.  What if they keep losing customers over the $5.00 fee for using debit cards for buying goods.  Also, Bank of America is expected to have a loss this quarter and its charges and other issues have likely continued to pressure the book value metrics.  What is there to say about the likely direction of the book value for the foreseeable future.

We ran a screen of banks trading at or under book value from the last quarter under the FinViz screen.  Book value should be considered a ceiling rather than a floor for the time being.  Ultimately that will change, but we live in a climate where banks are winding down prop-trading, not going for many loans, are not able to earn money in the short-term and intermediate-term fixed income markets, being sued over and over for actions of yesteryear, are under more and more regulation, and more.  There is just no real good news that is evident yet and shareholders are going to not care about book value any time soon.

A screen at FinViz gave some key banks valued at over $10 billion and trading under book value, and that is generally the stated book value rather than the tangible book value.  We would note that the price changes of the shares may alter these numbers slightly as the prices move up and down into and during earnings season.  We have also included earnings estimates for the quarter from Thomson Reuters to show which banks have a shot at higher book value rather than the banks losing money: 

BB&T Corp. (NYSE: BBT) trades at 0.92-times its latest book value.  Earnings estimates for the quarter are $0.49 EPS.

The Bank of New York Mellon Corporation (NYSE: BK) trades at 0.69-times its latest book value.  Earnings estimates for the quarter are $0.53 EPS.

Citigroup, Inc. (NYSE: C) trades at 0.46-times its latest book value. Earnings estimates for the quarter are $0.84 EPS.

Capital One Financial Corp. (NYSE: COF) trades at 0.68-times its latest book value.  This one is in the midst of digesting additional purchases so tallying up a relevant book value may be a couple of quarters out. Earnings estimates for the quarter are $1.68 EPS.

Fifth Third Bancorp (NYSE: FITB) trades at 0.80-times its latest book value. Earnings estimates for the quarter are $0.33 EPS.

The Goldman Sachs Group, Inc. (NYSE: GS) trades at 0.68-times its latest book value. Earnings estimates for the quarter are $0.37 EPS.

Morgan Stanley (NYSE: MS) trades at 0.50-times its latest book value. Earnings estimates for the quarter are $0.34 EPS.

PNC Financial Services Group Inc. (NYSE: PNC) trades at 0.81-times its latest book value. Earnings estimates for the quarter are $1.49 EPS.

SunTrust Banks, Inc. (NYSE: STI) trades at 0.51-times its latest book value. Earnings estimates for the quarter are $0.35 EPS.

As a reminder, earnings from operations do not assure that any growth will have been seen in stated book value nor in tangible book value.

******

An exception to the rule: Wells Fargo & Company (WFC) at 1.01-times its most recently stated book value.  Wells Fargo is around $27.00 now, although the book value per share was listed as $23.84 in its July earnings report. Earnings estimates for the quarter are $0.72 EPS.

Until Wall Street investors can figure out where these banks are going to make their profits and until Main Street and state and federal agencies stop putting severe pressure on the banks, what good is book value?  Book value is current a ceiling rather than a floor. 

Value investors and investors screening for “cheap stocks” still need to look elsewhere, unless they know how to model worst case scenarios for about a year or two out from today.

JON C. OGG