New Value Worries: Banks Trading at or Above Book Value (JPM, C, MTB, NYB, PNC, STT, TCB, USB, WFC)
Screening for value in banks right now is probably a fools’ game. In fact, J.P Morgan Chase & Co. (NYSE: JPM) trades at close to 0.9-times book value and Citigroup Inc. (NYSE: C) trades at about 0.8-times its stated book value. European banks are tanking and U.S. banks look little better. That being said, it seems that investors might be concerned about other relatively large banks that are trading at a premium to book value today or even those at a very slight discount to book value.
After running a screen on FinViz, we identified some of the “premium” banks close to or above book value as being M&T Bank Corporation (NYSE: MTB), New York Community Bancorp Inc. (NYSE: NYB), PNC Financial Services Group Inc. (NYSE: PNC), State Street Corporation (NYSE: STT), TCF Financial Corporation (NYSE: TCB), U.S. Bancorp (NYSE: USB), and Wells Fargo & Company (NYSE: WFC).
Admittedly, there is often a reason and some of these are not quite apples-to-apples comparisons. Still, the current trend is that book value is now a ceiling rather than a floor. Value investing just became very convoluted. We screened out other issues such as brief descriptions, prices and trading ranges, market capitalization rates, and added in other color if applicable. We also looked at Finviz for price-to-book ratios and confirmed data in press releases from each bank if available.
M&T Bank Corporation (NYSE: MTB) is the holding company for M&T Bank, offering commercial and retail banking services in New York, Pennsylvania, Maryland, Delaware, New Jersey, Virginia, West Virginia, and the District of Columbia. The market is capitalization is more than $10 billion with a share price of $84.67 and a 52-week range of $72.03 to $95.00. Thomson Reuters has a consensus price target of $95.21. Finviz currently shows a price-to-book ratio of 1.16, but that has not been confirmed in the most recent quarterly report. The common equity book value per share at the end of 2010 was $63.54.
New York Community Bancorp Inc. (NYSE: NYB) is the holding company for New York Community Bank and New York Commercial Bank, which offer banking products and services in New York, New Jersey, Ohio, Florida, and Arizona. Its market capitalization is about $6.5 billion with a share price of $14.85 and a 52-week range of $14.40 to $19.33. Thomson Reuters has a consensus price target of $18.50 and Finviz currently shows a price-to-book ratio of just under 1.2. The latest earnings release showed that book value per share declined $0.02 to $12.67 per share.
PNC Financial Services Group Inc. (NYSE: PNC) is the diversified bank and financial services company with operations in Pennsylvania, Ohio, New Jersey, Michigan, Maryland, Illinois, Indiana, Kentucky, Florida, Missouri, Virginia, Delaware, Washington, D.C., and Wisconsin. It has some 2,446 branches. Its market capitalization rate is $29.4 billion and the drop of 1.6% today has its shares trading at $55.90 versus a 52-week range of $49.43 to $65.19. Thomson Reuters has a consensus price target of about $71.00 on PNC and Finviz currently shows a price-to-book ratio of 0.96. PNC’s latest book value in its press release for earnings showed that Book value per common share was $58.01.
State Street Corporation (NYSE: STT) is a different sort of bank because it is a custodial bank per its most frequently recognized purpose. The market cap is $21.5 billion after a 2.4% drop to $42.76 and its 52-week range is $34.37 to $50.26. Finviz currently shows a price-to-book ratio of 1.15. Thomson Reuters has a consensus price target of almost $55.00 on State Street.
TCF Financial Corporation (NYSE: TCB) is the holding company for TCF National Bank with over 440 branch offices spread out in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, Indiana, and 1 branch in South Dakota. Its market capitalization is $2.03 billion after a 2.5% drop to $12.91 and its 52-week trading range is $12.83 to $17.37. Thomson Reuters still has a consensus price target of $16.86 at this time and that 52-week low was hit today as well. Finviz currently shows a price-to-book ratio of just over 1.2. Its latest book value with earnings in April was listed as $10.74 per share.
U.S. Bancorp (NYSE: USB) is the second largest of the “above book value banks” in market cap at $47 billion after a 1.4% drop to $24.39. Thomson Reuters still has a consensus price target of about $30.38 and its 52-week trading range is $20.44 to $28.94. Generally speaking, it is considered a higher-end bank and it operates a network of approximately 3,000 bank offices. Finviz currently shows a price-to-book ratio of 1.56, but the latest press release only shows a book value of $14.83 per share..
Wells Fargo & Company (NYSE: WFC) is a bit of a conundrum now as its market cap is still $140 billion after a 2.1% drop to $26.62. Its 52-week trading range is $23.02 to $34.25 and the most recent earnings release has a book value of $23.18 per share. Thomson Reuters still has a consensus price target of about $36.00 on Wells Fargo. The bank has literally about 9,000 branches all over America. Finviz currently shows a price-to-book ratio of 1.08.
The first thing to consider is that these book value are all going to change in the coming days and over the next week or two. Another thing to consider is that many banks will just not trade in tandem. State Street is not Bank of America, U.S. Bancorp is not Citi. Still, TCB is not exactly J.P.Morgan by a long shot. Another consideration is that some hidden values may be lurking in some of the premium banks. Lastly, logic would dictate that if reports are coming about banks which trade above book value when peer leadership banks are under book value might lead us to make a simple reminder: perhaps that is a bottom.
All things considered, we wanted to identify those banks which screen out in the premium category. Citi went out at about 0.8-times book value and J.P. Morgan went out at about 0.9-times book value. As a last reminder on book value, asset sales, charge-offs, write-offs, writedowns, quarterly losses, settlements, and a few dozen other items can actually help to lower stated book value per share even if these banks post earnings from normal operations. Also, if things get worse on the debt ceiling debate with politicians in D.C. and if Europe continues its path to the bonfire you just have to assume that stated book values will only be items that bankers have to answer questions about how the numbers were derived.
Warren Buffett was quoted back in the 1990s saying, “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.” We don’t go along with the Buffett model of “buy and hold forever” any longer, but you get the idea. Maybe he will put his money where is mouth is and show that he bought more of Wells Fargo C0. (NYSE: WFC), undeniably Mr. Buffett’s favorite bank stock.
JON C. OGG