Should big bank stocks worry about the fine given to JPMorgan, or is this an opportunity for value investors?
Usually when banks pay fines, especially the big ones, it's not something for them to write home about. The biggest fines levied against high finance have targeted several banks at a time - and typically have been negotiated down and settled at much smaller amounts.
Well, that was then. This is now.
JPMorgan (JPM) announced today they're shelling out $13 billion in fines for the mortgages they issued in the years leading up to the financial crisis. It's by far the largest amount of restitution a financial firm has ever paid out as an admission of wrongdoing. It also begs major questions - about what this will mean for the storied big bank, as well as its competitors.
After all, JPMorgan does a lot of business, and makes a lot of money. But that's $13 billion is roughly half the company's quarterly sales. It's hard to imagine how any business would be able to cope with that kind of hit, no matter how much money you're making.
And yet at the same time, value investors will probably know that this might present something of an opportunity. As the market factors the new fines into JPMorgan's share price, it will be interesting to see if the bank can get any more undervalued than it already is.
Considering JPMorgan's record fine, we decided to look for investing opportunities among big bank stocks and other financial firms. We began with a list of the major companies in the financial industry with market capitalizations over $10 billion.
Then we looked for big bank stocks that are trading at least 15% below their book value, an indication that the company might be undervalued.
Unfortunately, that didn't really narrow down our list at all. As Vilas Capital CEO John C. Thompson explains, almost all the big banks are tremendously undervalued right now. This is partly because new capital requirements have driven down their ROE, but also because the public still doesn't feel like big banks have been sufficiently punished. But that should all change, eventually.
Whether or not the $13 billion fine will be enough to put the public's mind at ease, it's still too early to say. In the event that a turnaround is indeed imminent for America's most profitable companies, we found seven which are trading at least 20% below their Graham Number.
A theoretical price determined by looking at book value per share and operating margins, a stock's Graham Number can be a strong indicator of undervaluation.
Click on the interactive chart to view analyst ratings for these big bank stocks over time.
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Do you see investing opportunities in big bank stocks? Use the list below as a starting point for your own analysis.
1. The Allstate Corporation (ALL, Earnings, Analysts, Financials): Engages in the personal property and casualty insurance, life insurance, retirement, and investment products businesses primarily in the United States. Market cap at $25.01B, most recent closing price at $54.24.
2. Bank of America Corporation (BAC, Earnings, Analysts, Financials): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments. Market cap at $159.93B, most recent closing price at $14.92.
3. CNA Financial Corporation (CNA, Earnings, Analysts, Financials): Provides property and casualty insurance products to small, middle-market, and large businesses and organizations. Market cap at $11.03B, most recent closing price at $40.90.
4. JPMorgan Chase & Co. (JPM, Earnings, Analysts, Financials): Provides various financial services worldwide. Market cap at $209.97B, most recent closing price at $55.74.
5. KeyCorp (KEY, Earnings, Analysts, Financials): Operates as a holding company for KeyBank National Association that provides various banking services in the United States. Market cap at $11.56B, most recent closing price at $12.82.
6. SunTrust Banks, Inc. (STI, Earnings, Analysts, Financials): Operates as the holding company for SunTrust Bank, which provides various financial services to consumer and corporate customers in the United States. Market cap at $19.2B, most recent closing price at $35.96.
7. The Travelers Companies, Inc. (TRV, Earnings, Analysts, Financials): Provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. Market cap at $32.53B, most recent closing price at $88.18.
(List compiled by James Dennin. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)
Analyze These Ideas: Getting StartedRead descriptions for all companies mentioned Access a performance overview for all stocks in the list Compare analyst ratings for the companies mentioned Compare analyst ratings to annual returns for stocks mentioned Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, FilingsThe Allstate Corporation (ALL, Chart, Download SEC Filings) Bank of America Corporation (BAC, Chart, Download SEC Filings) CNA Financial Corporation (CNA, Chart, Download SEC Filings) JPMorgan Chase & Co. (JPM, Chart, Download SEC Filings) KeyCorp (KEY, Chart, Download SEC Filings) SunTrust Banks, Inc. (STI, Chart, Download SEC Filings) The Travelers Companies, Inc. (TRV, Chart, Download SEC Filings)
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