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4 Major Regional Bank Stocks to Watch in a Prospering Industry
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The Zacks Major Regional Banks industry continues to bear the brunt of near-zero interest rates and muted lending scenario. Though there has been a solid economic rebound, these adverse factors will keep hampering growth in banks’ net interest margins and interest income.
However, business restructuring and expansion initiatives, and technological investments are likely to provide much-needed support. Robust asset quality, reserve releases, and economic recovery are likely to be tailwinds. JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corp. (BAC - Free Report) , Citigroup Inc. (C - Free Report) , and The PNC Financial Services Group, Inc. (PNC - Free Report) are expected to benefit from these trends.
About the Industry
The Zacks Major Regional Banks industry includes the nation’s largest banks in terms of assets, with most operating globally. The financial performance of these banks largely depends on the nation’s economic health. As the banks are involved several complex financial activities, they are required to meet the stringent regulations set by the Federal Reserve and other agencies. Apart from traditional banking services, which are the source of interest income, major regional banks provide a wide range of other financial services and products to retail, corporate and institutional clients, both domestic and global. These include credit and debit cards, mortgage banking, wealth management, and investment banking, among others. So, a large source of revenues for these banks comprises fees and commissions earned from these services.
4 Trends Shaping the Future of the Major Regional Bank Industry
Business Restructuring Offers Support: Major regional banks are undertaking strategic measures to counter the fallout from low interest rates and soft loan demand by restructuring operations and expanding into new avenues. Some of the key driving factors are the need for technological advancement and further domestic/global expansion. Banks like Fifth Third BancorpFITB, Truist FinancialTFC, and U.S. Bancorp USB are investing heavily in artificial intelligence and other digital platforms, and even partnering/acquiring providers of such services as there has been a significant rise in demand for these amid the coronavirus pandemic.
Major banks including JPMorgan and Citigroup have been expanding footprint outside of the United States and into the U.K. and China. Also, banks are re-evaluating their business structure to improve operating efficiency. The main goal is to simplify operations and do away with non-core, unprofitable ones. Wells Fargo WFC and Citigroup are doing the same.
Asset Quality Shows Signs of Improvement: For the most of last year, major regional banks built additional provisions worth billions of dollars to tide over unexpected defaults and payment delays owing to the economic slowdown resulting from the coronavirus mayhem. This substantially hurt their profitability in the first half of 2020. However, with a strong economic revival and the current steady pace in vaccination coverage globally, banks have begun to release these reserves back into the income statement. Further, the government stimulus package and support from the central bank are expected to keep aiding banks’ asset quality in the near term.
Full-fledged Capital Distributions Resume: After a year’s hiccup owing to the COVID-19 ambiguity, major regional banks came out with capital plans in June to reward shareholders with billions of dollars in the form of dividends and share repurchases through the second quarter of 2022. This followed the clearance of this year’s stress test and subsequent approval from the Fed. While ending the restrictions on capital distributions (imposed last year to conserve liquidity to tide over economic slowdown), the central bank had noted that banks remained “well capitalized” even under the severe economic downturn.
Low Rates & Soft Loan Demand Hurt Revenues: Major regional banks substantially benefit from higher interest rates. However, in March 2020, the Fed slashed the interest rates to near-zero to support the U.S. economy from the coronavirus-related mayhem. Since then, the central bank has been signaling no chance of a rate hike anytime soon. Also, loan demand continues to be weak. Thus, these factors will adversely impact the banks’ net interest margin and net interest income growth.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Major Regional Banks industry is a 15-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #123, which places it in the top 49% of nearly 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of encouraging earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Over the past year, the industry’s earnings estimates for the current year have been revised 73.5% upward.
Before we present a few stocks that you might want to consider despite low rates, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Major Regional Banks industry has outperformed the S&P 500 composite and its own sector over the past year. While the stocks in this industry have collectively surged 58.9% over the period, the Zacks S&P 500 composite has gained 35.3% and Zacks Finance sector has rallied 40.6%.
One-Year Price Performance
Industry's Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing banks because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 2.24X. This compares with the highest level of 2.68X, lowest of 1.21X, and median of 2.15X over the past five years. Additionally, the industry is trading at a huge discount compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 composite is 17.14X, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a lower P/TBV ratio, comparing major regional banks with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV came in at 4.43X. This is above the Zacks Major Regional Banks industry’s ratio, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
4 Major Regional Bank Stocks to Keep an Eye on
JPMorgan: The largest U.S. bank (in terms of assets), JPMorgan has operations in more than 60 countries. The bank is expanding its footprint in new regions and aims to enter 25 new markets by opening roughly 400 branches by 2022-end. Apart from enhancing its scale, the strategy will help the bank grab cross-selling opportunities by increasing its presence in the card and auto loan sectors.
This Zacks Rank #3 (Hold) bank is also taking measures to further diversify operations. While JPMorgan is too big to be allowed to acquire another bank, it has been making strategic buyouts to strengthen fee income sources. Over the past few months, the company has been on an expansion spree and has announced several acquisitions including OpenInvest, a 40% stake in Brazil's C6 Bank, the U.K.-based robo-advisor Netmeg, and 55ip.
Following the clearance of this year’s stress test, JPMorgan announced its plan to hike quarterly dividend by 11.1% to $1 per share, effective third-quarter 2021. It intends to continue with the previously announced share buyback plan. For 2021, the company had authorized to repurchase shares worth up to $30 billion.
With a market cap of $475.7 billion, JPMorgan is expected to continue benefiting from its scale and business expansion efforts. Also, analysts are bullish on the stock. The Zacks Consensus Estimate for earnings has moved 6% upward for 2021 over the past 60 days.
The stock has gained 25.3% so far this year. The company’s long-term (three-five years) projected earnings growth rate of 5% promises rewards for shareholders.
Price and Consensus: JPM
Bank of America: With total assets worth $3.03 trillion as of Jun 30, 2021, BofA is one of the largest financial holding companies in the United States. The company provides a diverse range of banking and non-banking financial services and products across North America and globally.
BofA continues to align its banking center network according to customer needs. It is on track to open 500 centers in new cities and redesign 2,500 centers with technology upgrades. These efforts, along with the success of Zelle and Erica, have enabled the company to improve digital offerings and cross sell several products including mortgages, auto loans, and credit cards. The acquisition of Axia Technologies will further strengthen the company's healthcare payments business.
Prudent cost management continues to support the bank’s financials. Its expense-saving plan – Project New BAC (launched in 2011) – helped improve overall efficiency and save as much as $8.0 billion in operating expenses annually till 2014. Over the last several quarters, BofA has incurred on an average $14 billion in expenses, despite undertaking strategic growth initiatives.
In July 2021, following the Fed’s approval, BofA announced a dividend hike of 17% to 21 cents per share. The company's share repurchase plan remains at the previously announced level of $25 billion.
With a market cap of $345.4 billion, BofA’s efforts to improve revenue growth, strong balance sheet, and expansion into new markets will support financials. Further, analysts are bullish on the stock. Over the past two months, the Zacks Consensus Estimate for earnings has been revised 8.4% upward for 2021.
The stock, which currently carries Zacks Rank #3, has gained 36.3% so far this year. The company’s long-term (three-five years) projected earnings growth rate of 7% promises rewards for shareholders.
Price and Consensus: BAC
Citigroup: As a globally diversified financial services holding company, Citigroup provides a range of financial products and services including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. The company has nearly 200 million customer accounts in more than 160 countries and jurisdictions.
This Zacks Rank #3 company continues to increase fee-based business mix and shrink its non-core assets. It has been emphasizing growth in core businesses through streamlining operations internationally. In April, the bank announced a major strategic action, whereby the Global Consumer Banking segment will exit 13 markets across Asia and EMEA. With the move, Citigroup seeks to focus more on wealth division operations in Singapore, Hong Kong, the UAE, and London.
While the low interest rate environment and sluggish loan demand have been hurting Citigroup’s net interest revenues, economic recovery, as well as a rebound in consumer and corporate confidence, is anticipated to drive loan growth.
Citigroup has a market cap of $144.2 billion. A diverse business model, focus on core operations, and streamlining of international businesses will keep supporting the company’s prospects. Also, analysts are bullish on the stock. Over the past 60 days, the Zacks Consensus Estimate for earnings has moved 9.4% upward for 2021.
In the year-to-date period, the stock has rallied 14.8%. The company’s long-term (three-five years) projected earnings growth rate of 8% promises rewards for shareholders.
Price and Consensus: C
PNC Financial: Through a branch network of more than 2,700 located primarily in markets across the Mid-Atlantic, Midwest, Southeast and Southwest, PNC Financial provides consumer and business banking services.
The company is committed toward developing its business through strategic initiatives. In June, PNC Financial acquired BBVA, S.A.’s subsidiary BBVA USA Bancshares, Inc., which positioned it as the fifth-largest commercial bank in the United States (in terms of assets and presence). Also, the company plans to extend the reach of middle-market corporate banking franchise into new markets and expand its retail banking brand nationally.
Following this year’s stress test results, PNC Financial continues to progress with its capital deployment strategy. In July, the bank hiked the quarterly cash dividend by 9% to $1.25 per share. It also announced its intention to reinstate share repurchase programs with buybacks of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021.
PNC Financial has a market cap of $81.4 billion. Analysts are bullish on the stock, which currently carries a Zacks Rank of 3. Over the past 60 days, the Zacks Consensus Estimate for earnings has moved 8.7% upward for 2021.
In the year-to-date period, the stock has rallied 29%. The company’s long-term (three-five years) projected earnings growth rate of 25.6% promises substantial rewards for shareholders.
Price and Consensus: PNC
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4 Major Regional Bank Stocks to Watch in a Prospering Industry
The Zacks Major Regional Banks industry continues to bear the brunt of near-zero interest rates and muted lending scenario. Though there has been a solid economic rebound, these adverse factors will keep hampering growth in banks’ net interest margins and interest income.
However, business restructuring and expansion initiatives, and technological investments are likely to provide much-needed support. Robust asset quality, reserve releases, and economic recovery are likely to be tailwinds. JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corp. (BAC - Free Report) , Citigroup Inc. (C - Free Report) , and The PNC Financial Services Group, Inc. (PNC - Free Report) are expected to benefit from these trends.
About the Industry
The Zacks Major Regional Banks industry includes the nation’s largest banks in terms of assets, with most operating globally. The financial performance of these banks largely depends on the nation’s economic health. As the banks are involved several complex financial activities, they are required to meet the stringent regulations set by the Federal Reserve and other agencies. Apart from traditional banking services, which are the source of interest income, major regional banks provide a wide range of other financial services and products to retail, corporate and institutional clients, both domestic and global. These include credit and debit cards, mortgage banking, wealth management, and investment banking, among others. So, a large source of revenues for these banks comprises fees and commissions earned from these services.
4 Trends Shaping the Future of the Major Regional Bank Industry
Business Restructuring Offers Support: Major regional banks are undertaking strategic measures to counter the fallout from low interest rates and soft loan demand by restructuring operations and expanding into new avenues. Some of the key driving factors are the need for technological advancement and further domestic/global expansion. Banks like Fifth Third Bancorp FITB, Truist Financial TFC, and U.S. Bancorp USB are investing heavily in artificial intelligence and other digital platforms, and even partnering/acquiring providers of such services as there has been a significant rise in demand for these amid the coronavirus pandemic.
Major banks including JPMorgan and Citigroup have been expanding footprint outside of the United States and into the U.K. and China. Also, banks are re-evaluating their business structure to improve operating efficiency. The main goal is to simplify operations and do away with non-core, unprofitable ones. Wells Fargo WFC and Citigroup are doing the same.
Asset Quality Shows Signs of Improvement: For the most of last year, major regional banks built additional provisions worth billions of dollars to tide over unexpected defaults and payment delays owing to the economic slowdown resulting from the coronavirus mayhem. This substantially hurt their profitability in the first half of 2020. However, with a strong economic revival and the current steady pace in vaccination coverage globally, banks have begun to release these reserves back into the income statement. Further, the government stimulus package and support from the central bank are expected to keep aiding banks’ asset quality in the near term.
Full-fledged Capital Distributions Resume: After a year’s hiccup owing to the COVID-19 ambiguity, major regional banks came out with capital plans in June to reward shareholders with billions of dollars in the form of dividends and share repurchases through the second quarter of 2022. This followed the clearance of this year’s stress test and subsequent approval from the Fed. While ending the restrictions on capital distributions (imposed last year to conserve liquidity to tide over economic slowdown), the central bank had noted that banks remained “well capitalized” even under the severe economic downturn.
Low Rates & Soft Loan Demand Hurt Revenues: Major regional banks substantially benefit from higher interest rates. However, in March 2020, the Fed slashed the interest rates to near-zero to support the U.S. economy from the coronavirus-related mayhem. Since then, the central bank has been signaling no chance of a rate hike anytime soon. Also, loan demand continues to be weak. Thus, these factors will adversely impact the banks’ net interest margin and net interest income growth.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Major Regional Banks industry is a 15-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #123, which places it in the top 49% of nearly 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of encouraging earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Over the past year, the industry’s earnings estimates for the current year have been revised 73.5% upward.
Before we present a few stocks that you might want to consider despite low rates, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Major Regional Banks industry has outperformed the S&P 500 composite and its own sector over the past year. While the stocks in this industry have collectively surged 58.9% over the period, the Zacks S&P 500 composite has gained 35.3% and Zacks Finance sector has rallied 40.6%.
One-Year Price Performance
Industry's Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing banks because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 2.24X. This compares with the highest level of 2.68X, lowest of 1.21X, and median of 2.15X over the past five years. Additionally, the industry is trading at a huge discount compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 composite is 17.14X, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a lower P/TBV ratio, comparing major regional banks with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV came in at 4.43X. This is above the Zacks Major Regional Banks industry’s ratio, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
4 Major Regional Bank Stocks to Keep an Eye on
JPMorgan: The largest U.S. bank (in terms of assets), JPMorgan has operations in more than 60 countries. The bank is expanding its footprint in new regions and aims to enter 25 new markets by opening roughly 400 branches by 2022-end. Apart from enhancing its scale, the strategy will help the bank grab cross-selling opportunities by increasing its presence in the card and auto loan sectors.
This Zacks Rank #3 (Hold) bank is also taking measures to further diversify operations. While JPMorgan is too big to be allowed to acquire another bank, it has been making strategic buyouts to strengthen fee income sources. Over the past few months, the company has been on an expansion spree and has announced several acquisitions including OpenInvest, a 40% stake in Brazil's C6 Bank, the U.K.-based robo-advisor Netmeg, and 55ip.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Following the clearance of this year’s stress test, JPMorgan announced its plan to hike quarterly dividend by 11.1% to $1 per share, effective third-quarter 2021. It intends to continue with the previously announced share buyback plan. For 2021, the company had authorized to repurchase shares worth up to $30 billion.
With a market cap of $475.7 billion, JPMorgan is expected to continue benefiting from its scale and business expansion efforts. Also, analysts are bullish on the stock. The Zacks Consensus Estimate for earnings has moved 6% upward for 2021 over the past 60 days.
The stock has gained 25.3% so far this year. The company’s long-term (three-five years) projected earnings growth rate of 5% promises rewards for shareholders.
Price and Consensus: JPM
Bank of America: With total assets worth $3.03 trillion as of Jun 30, 2021, BofA is one of the largest financial holding companies in the United States. The company provides a diverse range of banking and non-banking financial services and products across North America and globally.
BofA continues to align its banking center network according to customer needs. It is on track to open 500 centers in new cities and redesign 2,500 centers with technology upgrades. These efforts, along with the success of Zelle and Erica, have enabled the company to improve digital offerings and cross sell several products including mortgages, auto loans, and credit cards. The acquisition of Axia Technologies will further strengthen the company's healthcare payments business.
Prudent cost management continues to support the bank’s financials. Its expense-saving plan – Project New BAC (launched in 2011) – helped improve overall efficiency and save as much as $8.0 billion in operating expenses annually till 2014. Over the last several quarters, BofA has incurred on an average $14 billion in expenses, despite undertaking strategic growth initiatives.
In July 2021, following the Fed’s approval, BofA announced a dividend hike of 17% to 21 cents per share. The company's share repurchase plan remains at the previously announced level of $25 billion.
With a market cap of $345.4 billion, BofA’s efforts to improve revenue growth, strong balance sheet, and expansion into new markets will support financials. Further, analysts are bullish on the stock. Over the past two months, the Zacks Consensus Estimate for earnings has been revised 8.4% upward for 2021.
The stock, which currently carries Zacks Rank #3, has gained 36.3% so far this year. The company’s long-term (three-five years) projected earnings growth rate of 7% promises rewards for shareholders.
Price and Consensus: BAC
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Citigroup: As a globally diversified financial services holding company, Citigroup provides a range of financial products and services including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. The company has nearly 200 million customer accounts in more than 160 countries and jurisdictions.
This Zacks Rank #3 company continues to increase fee-based business mix and shrink its non-core assets. It has been emphasizing growth in core businesses through streamlining operations internationally. In April, the bank announced a major strategic action, whereby the Global Consumer Banking segment will exit 13 markets across Asia and EMEA. With the move, Citigroup seeks to focus more on wealth division operations in Singapore, Hong Kong, the UAE, and London.
While the low interest rate environment and sluggish loan demand have been hurting Citigroup’s net interest revenues, economic recovery, as well as a rebound in consumer and corporate confidence, is anticipated to drive loan growth.
Citigroup has a market cap of $144.2 billion. A diverse business model, focus on core operations, and streamlining of international businesses will keep supporting the company’s prospects. Also, analysts are bullish on the stock. Over the past 60 days, the Zacks Consensus Estimate for earnings has moved 9.4% upward for 2021.
In the year-to-date period, the stock has rallied 14.8%. The company’s long-term (three-five years) projected earnings growth rate of 8% promises rewards for shareholders.
Price and Consensus: C
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PNC Financial: Through a branch network of more than 2,700 located primarily in markets across the Mid-Atlantic, Midwest, Southeast and Southwest, PNC Financial provides consumer and business banking services.
The company is committed toward developing its business through strategic initiatives. In June, PNC Financial acquired BBVA, S.A.’s subsidiary BBVA USA Bancshares, Inc., which positioned it as the fifth-largest commercial bank in the United States (in terms of assets and presence). Also, the company plans to extend the reach of middle-market corporate banking franchise into new markets and expand its retail banking brand nationally.
Following this year’s stress test results, PNC Financial continues to progress with its capital deployment strategy. In July, the bank hiked the quarterly cash dividend by 9% to $1.25 per share. It also announced its intention to reinstate share repurchase programs with buybacks of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021.
PNC Financial has a market cap of $81.4 billion. Analysts are bullish on the stock, which currently carries a Zacks Rank of 3. Over the past 60 days, the Zacks Consensus Estimate for earnings has moved 8.7% upward for 2021.
In the year-to-date period, the stock has rallied 29%. The company’s long-term (three-five years) projected earnings growth rate of 25.6% promises substantial rewards for shareholders.
Price and Consensus: PNC
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