The financial crisis still casts a shadow over the banking industry. Some banks didn't make it out of the crisis alive, and many others have failed to mount a full recovery from their pre-crisis highs. Despite impressive rebounds over the past 10 years, Bank of America (NYSE:BAC) and Citigroup (NYSE:C) still trade below the levels they enjoyed prior to the market meltdown.

Now, many factors are working in favor of major financial institutions, including trends toward less regulation and a more auspicious interest rate environment. Investors are interested in bank stocks, and they want to know whether B of A or Citi deserves a place in their portfolios. Let's delve deeper into both to see how they compare and which looks like the better buy.

Citi logo in blue letters with red arc above.

Image source: Citigroup.

Stock performance and valuation

Both Bank of America and Citigroup have done extremely well over the past 12 months. B of A is up 31% since March 2017, and Citigroup has put in a strong showing, rising 22% over the same period.

At first glance, it's impossible to compare the two banks using the most basic valuation measures, because Citigroup has posted a loss over the past 12 months, due largely to the negative one-time impacts related to tax reform. However, when you look at projected earnings for the immediate future, Citigroup looks slightly cheaper than Bank of America. Citi's forward earnings multiple comes in at less than 10, compared to B of A's figure of 11 times forward earnings.

Bank investors also look closely at book value, and there too, Citi looks less expensive. The shares trade at just over book value, compared to about 1.3 times book for Bank of America. By most measures, Citigroup looks more attractive on a valuation basis than B of A does right now.

Dividends

Both Bank of America and Citigroup have worked hard to restore some of their pre-crisis dividends to shareholders, but the path has been long, and progress has been slow. Based on current yield, Citi has a slight edge, weighing in at 1.75% compared to B of A's yield of 1.5%.

Bank of America was quicker to start getting its dividend payments moving higher again, but Citigroup has made more dramatic increases, especially over the past couple of years. Citi boosted its dividend from the $0.01-per-share token quarterly amount it paid after the financial crisis to $0.05 per share quarterly in 2015. From there, the bank more than tripled its quarterly payout to $0.16 per share in 2016, and then doubled it last year. Bank of America did its $0.01 to $0.05 boost a year earlier, but subsequent raises were less dramatic, with a 50% jump in 2016 and a 60% rise last year. Again here, Citigroup has a slight edge, but both stocks are now in a place in which they can feel comfortable about sustainable payouts that still give shareholders significant income.

Growth prospects and risk

Both of these banks have made a lot of headway in restoring their respective businesses, and they're increasingly optimistic about the future. Bank of America sees things going well in 2018 as the strategic moves it has made in recent years start to pay off. A leaned-down branch network has eliminated some less successful locations at the same time that B of A has invested in beefing up its mobile and online capabilities to give its customers greater convenience. An emphasis on internal efficiency has cut overall costs, helping to bolster the bank's bottom line. Bank of America still has opportunities to make more of a splash, especially in areas like its Merrill Lynch brokerage operations. But with interest rates starting to offer the potential for wider net interest margin figures, B of A should start seeing some tailwinds that could help propel it still higher.

Citigroup has plenty of potential of its own, but the bank takes a slightly different approach to the market than Bank of America. In particular, Citigroup has a more well-defined international presence, with extensive consumer banking operations globally. Much of the company's growth recently has come from its foreign exposure, which has included gains in retail banking units covering Latin America and Asia. One concern that some have is that Citi has tended to rely more on short-term borrowing than its peers, relying on deposits to a correspondingly smaller degree. That carries risks when the Federal Reserve is boosting short-term rates, and it reduces the extent to which higher rates help the bank on a net basis.

Despite those concerns, Citigroup looks like a better buy than Bank of America right now. Long considered the odd player out among major U.S. banks, Citi has mounted a strong comeback and appears to be gaining momentum moving further into 2018 and beyond.