Banking & Finance

How QE3 Will Help the Seven Safest Banks in America

Banks are back in favor. The most recently announced round of quantitative easing via mortgage-backed securities purchases from the Federal Reserve follows a ratings action earlier this year in which Moody’s downgraded 15 of the world’s largest banks. Depositors will still worry about which banks are really safe if more trading losses surface after the debacle from J.P. Morgan Chase & Co. (NYSE: JPM) earlier this year, or if QE3 is too little too late to save the economy.

As depositors have to keep their money deposited somewhere, 24/7 Wall St. has revisited its list of the safest banks in America and looked at how QE3 is helping their valuation. The rise in these share prices has been across the board since earlier this summer. The “safest bank” criteria were very strict and it was limited to money-center banks, superregional banks and banks with a retail presence in multiple states.

A bank had to have a minimum market capitalization of $2 billion, it had to be valued at under 14-times expected earnings (based upon Thomson Reuters 2012 consensus estimates) and the price-to-book value had to be less than 2.0. Each bank had to have a minimum return on equity of 8% on the initial screen in June. To demonstrate how confident a candidate bank is, its initial dividend in June had to be at least 2.0%.

We also only chose financial institutions with an investment grade credit rating by the credit ratings agencies. Wall St. analysts still see upside to each of these great banks. Banks with fewer than 100 branch offices were also screened out as their footprint is too small for most Americans to know about the bank. All but one of the banks have a common share price above $10.00 per common share. It is also interesting to see that Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) own shares in many of these banks.

We remained focused on the top 50 banks by assets with a large retail banking presence, so even though the fiduciary banks of State Street Corp. (NYSE: STT) and Bank of New York Mellon Corp. (NYSE: BK) fit our initial screening criteria, they were not included. The “problem banks” like Citigroup Inc. (NYSE: C) and Bank of America Corp. (NYSE: BAC) were not included even though it would seem nearly impossible that depositors would have any risk with them at this time. Regional banks located in the troubled Southeast and Pacific Coast were also screened out for the most part, and we have left out banks that have recently grown the asset base due to mergers and acquisitions. Finally, we absolutely eliminated banks where we had concerns about their viability and survival during another recession.

Here are the seven safest banks in America to deposit money.

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