By Jon C. Ogg, 24/7 Wall St.
The U.S. banking sector is looking better in 2013 than it did in 2012, 2011 and so on. Balance sheets, credit metrics and underlying asset values continue to recover. Still, the recession was not that long ago and economic growth has hit serious headwinds. The public needs to be vigilant about financial risk ahead of another round of major U.S. bank stress tests. Regulators will soon decide which of the large American banks will be permitted to return more capital to their shareholders via higher dividends and stock buybacks. 24/7 Wall St. has recalibrated its list of the seven safest banks in America for 2013 and beyond.
Several banks were very close to meeting all of our financial, historic and transformative criteria, and they may be eligible for the list of safest banks in 2014, or even after the stress tests and after decisions have been formalized over returning capital to shareholders. Some of the data may seem investor oriented, but the reality is that institutional depositors, creditors and trading partners generally evaluate peers with many of the same metrics. The global economic recovery has lost some steam at the same time that the stock market has recovered. The public needs to know which of the larger banks are safe, regardless whether the economy stabilizes or worsens again.
This is the 24/7 Wall St. list of the safest banks in America for 2013 to deposit money into, ranked in order of safety, size by assets, and reach. Our rank is based on financial stability, size by assets, and by reach.
4. PNC Financial Services Group Inc. (NYSE: PNC)
Market cap: $33.2 billion
Total assets: $305 billion
PNC Financial Services Group Inc. (NYSE: PNC) is based in Pittsburgh and is the ninth largest bank in America by assets, with expansion taking place in the Southeast. The acquisition of RBC’s branches in the U.S. for almost $3.5 billion was nowhere close enough to change its rank. This deal and a mortgage charge pressured earnings. PNC has almost 2,900 branches in 17 states, and it also has an internal CEO transition taking place. Net income was about $3 billion in 2012, and its return on equity was dragged down to 8.31% from 9.56% a year earlier. Its Tier 1 common capital ratio was 9.6%, and it gave a Basel III Tier 1 common capital ratio projection of 7.3%. PNC pays a dividend of about 2.5% to its common holders and is likely to get approval to raise its payout as it has in 2012 and 2011. The bank’s return on assets is 0.97% and the return on equity is 7.2%. PNC was strong enough financially to close its National City acquisition at the end of 2008, when there was so much risk in the financial markets. PNC’s stock trades at $62.90, versus a book value per share of $67.05 and an analyst consensus price target of $68.33. The bank pays a 2.5% dividend yield to its common holders, and it owns more than one-fifth of the great asset management firm BlackRock Inc. (NYSE: BLK), worth close to $8.5 billion.
3. U.S. Bancorp (NYSE: USB)
Market cap: $63.7 billion
Total assets: $353.9 billion
U.S. Bancorp (NYSE: USB) often is overlooked as a money-center bank because it is a super-regional located in Minneapolis. It is the fifth largest commercial bank in the United States and caters to millions of consumers. Its net income was more than $5.6 billion in 2012, with a Tier 1 common ratio of 9.0% and a Tier 1 common equity ratio of approximately 8.1% under the proposed Basel III rules. The bank had a return on assets of 1.65% but boasted a very high return on equity of 16.2%. U.S. Bancorp operates more than 3,000 branch locations and 5,000 ATMs, and its operations are spread out over 25 states. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) owns more than 61 million shares, now worth more than $2 billion. U.S. Bancorp pays its common shareholders a 2.3% dividend yield, but its finances are strong enough that we expect regulators to approve more dividend hikes and continued share buybacks, as the company applies for them. The share price of $33.88 compares to a book value of $18.31 per share, and analysts have a consensus price target of $36.85. This big bank received an upgrade from S&P in late August 2012 but was downgraded by Moody’s in December 2012.
2. J.P. Morgan Chase & Co. (NYSE: JPM)
Market cap: $186 billion
Total assets: $2.4 trillion
Jamie Dimon is still the king of bankers, but the London Whale’s multibillion trading loss, which was overlooked and minimized, helped to remove this bank from being the safest bank in America. A growing shareholder call to split Dimon’s chairman and CEO roles is another point of contention, but the reality is that the bank’s finances are solid and it has the biggest fortress balance sheet of all banks. Dimon even has said under testimony that the only risk to the bank’s failure is a collision of the earth and moon. J.P. Morgan Chase & Co. (NYSE: JPM) made a profit of $21.3 billion in 2012, with a return on assets of 0.92% and a return on equity of 10.72%. Its represented Basel I Tier 1 common equity ratio was 11.0%, and it projected that its Basel III Tier 1 common ratio was 8.7%. It is largely expected that regulators will allow Jamie Dimon to raise the dividend and begin more aggressive share buybacks. Its current common dividend yield for shareholders is 2.5%. The share price of almost $49 compares to a book value per share of $51.27 and a Wall St. consensus price target of $53.03. J.P. Morgan has more than 5,600 branches around the nation and is still adding branches each year.
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1. Wells Fargo & Co. (NYSE: WFC)
Market cap: $188 billion
Total assets: $1.42 trillion
Wells Fargo & Co. (NYSE: WFC) remains the undisputed safest bank in America. This bank makes its money lending and acting as a bank more than through brokerage or investment banking and trading. Its net income in 2012 grew 19% over 2011 to $18.9 billion. The bank’s return on assets was 1.46%, with a return on equity of 13.35%. Wells Fargo represented its Tier 1 common equity ratio as 10.12% under Basel I, and its estimated Tier 1 common equity ratio was 8.18% under current Basel III capital proposals. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) owns a stake worth more than $16 billion and has reportedly acquired yet more shares. The safest banking giant in America is so safe that it was allowed to raise its dividend ahead of other banks, and it now offers a 2.87% dividend yield to the common holders. While shares trade at almost $36, its book value per share is $27.64, and Wall St. analysts have a consensus target price of $39.30. Wells Fargo has branches in almost every state in America, with more than 9,000 stores and 12,000 ATMs.
To see the full list, visit 24/7 Wall St.
The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.