Throwdown: Wells Fargo vs. BB&T

Who in his right mind would want to own a bank stock these days? Witnessing companies like Washington Mutual (NYSE: WM  ) , Citigroup (NYSE: C  ) , and Wachovia (NYSE: WB  ) go from cranking out profits to cranking out write-offs makes me ill. In times like these, it might be easy to bury your head under a pillow and just forget about banks as investments.

Bad idea
Thankfully, not all banks are created equal. True, the entire industry is in some form of agony. But a few standout names still deserve your attention, and maybe even your money. Some notable names that pop up these days include JPMorgan Chase (NYSE: JPM  ) , US Bancorp (NYSE: USB  ) , Wells Fargo (NYSE: WFC  ) , and BB&T (NYSE: BBT  ) . Today, we're going to make the last two throw their gloves off and go at it head-to-head.

In this corner ...
Wells Fargo is down just 4.5% in the last year, while BB&T is off around 12%, compared to a 29% loss for the KBW Bank ETF. But that should be the last thing to catch your attention. Both banks share a handful of qualities that bargain-hunting bank investors should adore:

• Neither has yet to report a subprime crisis-inspired quarterly loss.         
• Both have seen recent insider buying.
• Neither got carried away with nutty lending practices.

This sets us up for a pretty fair battle of the banks. Both are industry standouts, but which one takes the crown? Let's find out:

Metric (Trailing 12 months)	Wells Fargo	BB&T
Revenue	$42.1 billion	$10.7 billion
Net Income	$7.4 billion	$1.7 billion
Net Margin	17.6%	15.9%
Net Income Per Share	$2.22	$3.11
Share Price	$31	$33
Net Interest Margin	4.92%	3.65%
Return on Equity	14.6%	13.3%
Return on Assets	1.19%	1.28%

From here, there isn't too much to get excited about. Wells Fargo is bigger and slightly more profitable. Both banks posted strong returns on equity and assets ... yawn. If we want to find a true winner, we're going to have to dig a little deeper. How about the quality of their assets? Here, things perk up a bit:

Metric	Wells Fargo	BB&T
Non-performing loans as a percentage of average total loans	1.02%	1.36%
Net charge-offs as a percentage of average total loans	1.55%	0.72%
Allowance for losses as a percentage average of total loans	1.88%	0.95%
Allowance for losses as a percentage of non-performing loans	143.8%	97.8%

An interesting point arises: BB&T has about 30% more non-performing loans than Wells Fargo, yet its charge-offs are less than half as severe. What does this say about the companies? It could mean that BB&T is more efficient at getting troubled loans back in working order. That would also explain why BB&T doesn't have as much ammo in its allowance-for-losses account. This may sound boring, but it's vitally important. It means that BB&T could be better-suited to keep its head above water, as real estate continues to struggle and customers keep falling behind on their loan payments.

But wait ... doesn't Wells Fargo have a much higher allowance for loan losses? And hence, shouldn't it be more fit to stand up to the housing market? Yes and no. Having a massive allowance for loan losses isn't necessarily a sign of strength. It's sort of like walking around with a bulletproof vest: Sure, you're safer in the event you get shot, but wearing one in and of itself implies that you're heading into the danger zone. BB&T's ability to keep its net charge-off rate a notch lower means that it doesn't have to set more dough aside for a rainy day ... which means more money for you, the shareholder.

And the winner is ...
It's a close fight, but BB&T wins this match. To be sure, both banks are stellar companies that stand out among their peers, but BB&T's books appear to be a nick healthier than Wells Fargo's.

Now it's your turn
Both Wells Fargo and BB&T currently hold three-star rankings in our CAPS community. What do you think about the two? Join CAPS for free and tell the world.

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