As Loans Shrink, Which Banks Are Winning?

Last week, an audit by the TARP program's government watchdog suggested that a wide majority (83%) of banks that have received TARP investments had, in fact, put some of the funds to work by lending them out. That may well be true, but recently released second-quarter results show that the amount of total loans at the largest banks -- all TARP recipients -- fell during the period:

Bank

Quarter-on-Quarter Loan Growth
(Q2 2009/Q1 2009)

Year-on-Year Loan Growth
(Q2 2009/Q2 2008)

US Bancorp (NYSE: USB  )

(1.1%)

+9.9%

Citigroup (NYSE: C  )

(2.4%)

(14.1%)

Wells Fargo (NYSE: WFC  )

(2.6%)

Not comparable due to Wachovia acquisition.

Bank of America (NYSE: BAC  )

(3.6%)

Not comparable due to Countrywide acquisition.

PNC Financial (NYSE: PNC  )

(3.7%)

Not comparable due to National City acquisition.

JPMorgan Chase (NYSE: JPM  )

(3.9%)

Not comparable due to Washington Mutual acquisition.

Total (6 Banks)

(3.1%)

N/A

Source: Company documents.

Furthermore, much of the new loan volume in the quarter owed either to mortgage refinancings or renewals of existing credit lines to businesses.

Sorting the winners from the losers
The table above suggests that Citigroup, U.S. Bancorp, and Wells Fargo gained market share during the quarter, while Bank of America, JPMorgan Chase, and PNC Financial lost ground. In that regard, US Bancorp looks particularly impressive, clocking up year-on-year loan growth of nearly 10%. But what price must investors pay for performance? The following table contains some clues:

Company Name

Price/Earnings (estimated FY2010 earnings)

Price/Book Value

Price/Tangible Book Value

US Bancorp

13.4

1.67

3.36

Wells Fargo

13.4

1.31

2.6

JPMorgan Chase

12.6

1.02

1.89

PNC Financial

11.8

0.819

2.38

Bank of America

12.6

0.482

1.56

Citigroup

20.1

0.193

0.423

Source: Capital IQ, a division of Standard & Poor's.

Of the three "winners" I referred to earlier, I certainly prefer Wells Fargo and US Bancorp; they're simply better-run organizations than Citigroup, which is still a basket case. Apparently, I'm not alone -- both are at the top (read: "expensive") end of this group, whether it be in terms of price-to-earnings, price-to-book value, or price-to-tangible book value.

My top three
All the same, it looks like paying up is worthwhile in this case; I think Wells and US Bancorp offer good prospects of outperforming their peers -- and the broader market -- on a risk-adjusted basis over the next 10 years. Still, I need to mention JPMorgan Chase: Paying a measly 2% premium over book value for this superbly-run bank looks very inviting, indeed.

More Foolishness:

Start investing today -- just $7 per trade with Scottrade. Or find the broker that's right for you.

Take a hint from Warren Buffett's recent investment in preferred shares of financials with fat yields: In this market, dividends will be a big part of future returns. The team at Motley Fool Income Investor can show you how to build -- and manage -- a portfolio of stocks that pay a growing dividend. To discover their top five recommendations for new money now, take advantage of a 30-day free trial today.

Fool contributor Alex Dumortier, CFA has a beneficial interest in Wells Fargo, but not in any of the other companies mentioned in this article. The Motley Fool's disclosure policy sits anywhere it wants.


Read/Post Comments (0) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 951382, ~/Articles/ArticleHandler.aspx, 4/21/2014 3:28:54 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement