Big Banks Still At Big Discounts To Book Value Before Earnings (BAC, BK, C, GS, JPM, MS, NTRS, STT, STI, USB, WFC)

This week will be the start of earnings season as we get to start reviewing some key earnings for first quarter of 2012.  The banking sector is going to be of particular interest since we have had such a strong rally in financials since the end of December.  Many banks have gotten permission to raise their dividends and buy back shares, and many of the key banks are still trading at substantial discounts to book value and/or tangible book value.

We will be paying extra attention to the money center banks of Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), J.P. Morgan Chase & Co. (NYSE: JPM), and Wells Fargo & Co. (NYSE: WFC).  We will also be watching the bank holdings companies without any bank operations from Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS). On the trust bank side and fiduciary side, there is Bank of New York Mellon Corporation (NYSE: BK), State Street Corporation (NYSE: STT), and also Northern Trust Corporation (NASDAQ: NTRS).

We have shown the most recent closing prices, added in the Thomson Reuters consensus price target objective, and added in a 52-week trading range.  We have then shown the tangible book value and/or the stated book value, depending upon what was available from each bank.  The book values were taken from January press releases as of the end of 2011, but a couple had to be taken from ycharts.com as they did not report their stated book values.  You will see some of the banks still trade at healthy discounts to their book value and to their tangible book values, while others now trade at premiums again.

Read Also: Tempered Expectations Going Into Earnings Season

Bank of America Corporation (NYSE: BAC) recently closed at $8.93, its Thomson Reuters consensus target is currently $9.79, and the 52-week trading range is $4.92 to $13.64. The company most recently noted that its tangible book value per share was $12.95 at December 31, 2011, compared to $12.98 at December 31, 2010. The stated book value per share was $20.09 at December 31, 2011, compared to $20.99 at December 31, 2010.

Bank of New York Mellon Corporation (NYSE: BK) recently closed at $23.34, its Thomson Reuters consensus target is currently $25.67, and its 52-week range is $17.10 to $30.29.  The bank most recently noted that its book value was $27.62 at the end of 2011, down slightly from the $27.79 at the end of the third quarter but up from $26.06 at the end of 2010.  On a tangible book value per share, that figure was $10.57 at the end of 2011 versus $10.55 at the end of the third quarter and up from $8.91 at the end of 2010.

Citigroup, Inc. (NYSE: C) recently closed at $33.97, its consensus price target is $42.96, and its 52-week range is $21,40 to $46.00.  The bank most recently noted that its book value per share rose 8% from a year earlier to $60.78 per share, while its tangible book value per share was up 12% from the prior year to $49.81 per share.

Goldman Sachs Group Inc. (NYSE: GS) recently closed at $117.02, its Thomson Reuters consensus price target is $135.04, and the 52-week trading range is $84.27 to $163.98.  The company listed its most recent book value as $130.31 per share and its tangible book value per common share was listed as $119.72 per share.

J.P. Morgan Chase & Co. (NYSE: JPM) recently closed at $43.89, its consensus price target from Thomson Reuters is $51.93, and its 52-week range is $27.85 to $47.37.  Its most recent book value was listed as $46.59, up from $45.93 at the end of the Q3-2011 period and up from $43.04 at the end of 2010.

Read Also: Why I Was Disappointed In J.P. Morgan’s Dividend Hike

Morgan Stanley (NYSE: MS) recently closed at $17.98 and the consensus price target from Thomson Reuters is $22.80; shares have traded in a range of $11.58 to $27.38 over the 52-weeks.  At December 31, 2011, book value and tangible book value per common share were $31.42 and $27.95,15 respectively, giving a decent discount to book values.

Northern Trust Corporation (NASDAQ: NTRS) is not one of the discounted banks to book value, but it always has traded at a premium.  Shares recently closed at $46.22 and Thomson Reuters has a consensus price target of $48.05.  Its most recent book value was listed as $29.53, which is up from $29.68 at the end of the third quarter of 2011 and up from $28.19 at the end of 2010.

State Street Corporation (NYSE: STT) recently closed at $43.82 and Thomson Reuters has a consensus price target of $50.43.  Ycharts.com lists its book value at $38.41 per share.

SunTrust Banks, Inc. (NYSE: STI) recently closed at $23.28 and Thomson Reuters has a consensus price target of $25.84.  The most recent book value per share was listed as $36.98 per share by ycharts.com and the 52-week range is $15.79 to $29.89.

U.S. Bancorp (NYSE: USB) recently closed at $31.01 and Thomson Reuters has a consensus price target of $33.43.  The most recent book value was listed as $16.43 per share, up from a prior reading of $16.01.

Wells Fargo & Co. (NYSE: WFC) recently closed at $33.42 and is the only one of the four money-center banks trading at a premium.  Shares have traded in a range of $22.58 to $34.59 over the last 52-week period.  It is still a discount to the $36.53 target price from Thomson Reuters.  Its most recent book value was $24.64, and that book value was up 10% from the $22.49 reported at the end of 2010.

Is a discount to book value now creating an environment for a value stock or does this create a value trap?  As a reminder, book value has been a ceiling rather than a floor for most of the money-center banks.  Others are trading at steep premiums or discounts due to their sub-sector and due to how the market perceives each one.  Ultimately that price discount to book value may change, but as of now the valuation gap still exists in many of these key banks.

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JON C. OGG