Merrill Lynch Says Regulation Changes Huge for 5 Top Banks to Buy

Banking, finance, and taxes

Published: January 29, 2018 8:25 am

Last Updated: January 12, 2020 4:01 am

After already having been on a roll since the president was elected in November of 2016, some changes to current regulations could even make the tailwinds behind the financial sector a little stronger in 2018. In fact, recent news reports suggest that the Federal Reserve and the Office of the Comptroller of the Currency may propose lowering the overall supplementary leverage ratio as early as this week. Such a move could be huge for the top banks and brokerage firms.

A new Merrill Lynch research report estimates that lowering the requirements could result in a stunning $86 billion in excess capital. The analysts remain positive on three top money center banks and two industry-leading brokerage firms, and all are rated Buy at Merrill Lynch.

Citigroup

This top bank has broken out of a long trading range and could push even higher. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.

Trading at a still very cheap 10 times estimated 2018 earnings, the bank looks very reasonable in what has become a pricey stock market. A continuing stock buyback program is a big positive.

Merrill Lynch noted that the bank reported a “clean” fourth-quarter earnings per share that were better than expected. Revenues beat as well in the Institutional Clients Group and Global Consumer Banking. Trading was also better than feared. Feedback indicated more negative positioning into the quarter, which could drive stock higher.

Citigroup investors are paid a 1.6% dividend. The Merrill Lynch price target for the stock is $84. The Wall Street consensus price objective is $83.41. The stock closed Friday’s trading at 80.08 a share.

Goldman Sachs

This company continues to be the gold standard of Wall Street banks and trades at a very reasonable 11.6 times Merrill Lynch’s estimated 2018 earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise.

Goldman Sachs, which is on the Merrill Lynch US 1 list, posted fourth-quarter results that beat analyst expectations. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.

Goldman Sachs shareholders are paid a 1.11% dividend. Merrill Lynch has a $300 price objective, and the posted consensus price target is $266.76. The shares closed on Friday at $268.14 apiece.