Citigroup (C), Bank of America (BAC), JP Morgan Chase (JPM), and Wells Fargo (WFC), as financial “supermarkets,” are at greater risk from financial reform, writes Collins Stewart analyst Todd Hagerman in a note today, as they seem to be dead center in the wrath of Congress. Much safer, he believes, to go with smaller outfits such as Regionals Financial (RF), and SunTrust Banks (STI), which have a “fair amount of credit leverage” and whose shares trade at discounts to those of their peers.
While it’s unlikely there will be “game changing” legislation passed by the financial reform legislation working its way throug the Senate, some measures already passed, such as capping interchange fees for credit card issuers, “represent significant structural changes,” writes Hagerman. And the overhang on banks as a result will be “substantial” until a final bill is produced.
He expects Citi, B of A, JP Morgan, and Wells to “remain range-bound” while all this is worked out, with price targets of $24 for BAC, $6 for Citi, $60 for JPM, and $39 for WFC. Those 12-month targets still offer a lot of upside, with BAC at $16.31 today, Citi at $3.82, JP Morgan at $39.38, and WFC at $30.08.
Hagerman has a $33 price target on SunTrust, which is 1.5 times his estimate for trough tangible book value of $22. a discount to larger bank peers’ multiples. As for Regions, he gives it a $10 price target, also a 1.5 times multiple of book. Better-than-expected credit quality measures could lead to upside for the shares.
Regions today fell 10 cents, or 1.3%, to $7.82, while SunTrust closed down 49 cents, or 1.8%, at $27.54.
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