Bank Earnings To Be Clouded By Huge Discounts To Book Value (JPM, WFC, BAC, C, GS)

Wells Fargo & Co. (NYSE: WFC) is the one money-center bank that trades at a premium to its book value.  At $32.97, its book value per share at the end of the first quarter was $25.45.  We expect this book value to have increased yet again. The bank reported the first quarter figures as follows: “Tier 1 common equity under Basel I increased $4.4 billion to $99.5 billion, with Tier 1 common equity ratio of 9.95 percent under Basel I at March 31, 2012. Under current Basel III capital proposals, Tier 1 common equity ratio estimated at 7.81 percent, an increase of 31 basis points from prior quarter.” Thomson Reuters currently has estimates of $0.81 EPS and $21.32 billion in revenue. This is our safest bank in America of the money center banks, and it is also Warren Buffett’s favorite bank.

J.P. Morgan Chase & Co. (NYSE: JPM) book value per share was $47.60 against the current price of $34.25 and against a 52-week range of $27.85 to $46.49.  Shares were just above $40.00 per share before the London Whale losses surfaced and the loss of up to $4 billion may be larger than had been disclosed.  At the end of the first quarter the fortress bank reported the following: Basel I Tier 1 common of $128 billion, or 10.4%; estimated Basel III Tier 1 common of 8.4%.  With such a large loss from trading or hedging we do not expect that book value per share will be up substantially as of June 30. Thomson Reuters currently has estimates of $0.78 EPS and $21.93 billion in revenue.

Bank of America Corporation (NYSE: BAC) remains challenged and at $7.50 its book value at the end of the first quarter was $19.83 and its tangible book value per share was listed as $12.87. At the end of the first quarter BofA noted a record Tier 1 Common Equity Ratio of 10.78% and its Tier 1 capital ratio was 13.37%.  Unless BofA had any unknown major losses, we expect an uptick to tangible book value. Thomson Reuters currently has estimates of $0.15 EPS and $22.83 billion in revenue.

Citigroup, Inc. (NYSE: C) is trading close to $26.00 and its 52-week range is $21.40 to $40.50.  Its first quarter book value per share was $61.90 and its tangible book value per share was$50.90. The bank reported a Tier 1 Common Ratio of 12.4% amd noted at the end of the first quarter, “We continued to wind down our Citi Holdings legacy portfolio, which now stands at 11% of our total assets, while further building capital. With a Tier 1 Common Ratio of 12.4% under Basel I and an estimated Tier 1 Common Ratio of 7.2% under Basel III, we continue to be one of the best capitalized banks in the world.” Thomson Reuters currently has estimates of $0.90 EPS and $18.93 billion in revenue.

Goldman Sachs Group Inc. (NYSE: GS) trades at $94.25 and its 52-week range is $84.27 to $139.25.  At the end of the first quarter its book value per common share was $134.48 and its tangible book value per common share was $123.94.  Its Tier 1 capital ratio under Basel 1 was 14.7% and the firm’s Tier 1 common ratio under Basel 1 was 12.9%. Thomson Reuters currently has estimates of $1.27 EPS and $6.51 billion in revenue.

Read Also: The 7 Safest Banks in America

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JON C. OGG