Time to Buy Big Banks?
We think the pessimism regarding the large U.S. banks is overdone.
We believe the market is overly fearful about the prospects for large U.S. banks following fourth-quarter earnings reports. Energy exposure is limited, especially relative to exceptionally high capital levels. In the 1980s, nonperforming loans at oil banks peaked above 10% of total loans--none of the country's largest banks have energy exposure anywhere near this level. We remain bullish on the prospects for housing in the medium term as millennials age, especially if the employment market remains strong and mortgage credit becomes easier to obtain.
Citigroup remains a best idea on valuation, trading at a substantial discount to our $68 fair value estimate and its $60.61 tangible book value per share. Bank of America once again looks attractive as well, and we see it as best positioned to benefit from a rebounding U.S. consumer as well as eventual rising rates. Wide-moat Wells Fargo is likely to be the least volatile of the large banks, with its minimal exposure to capital markets businesses.
Jim Sinegal does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.