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10 Most Profitable Banks Trading Below Book Value

1. KeyCorp
Shares of KeyCorp (KEY - Get Report) of Cleveland closed at $8.91 Monday, returning 18% year-to-date, following a 12% decline during 2011.

The shares trade just below their June 30 tangible book value, and for ___ times the consensus 2013 EPS estimate of 86 cents. The consensus 2012 EPS estimate is 85 cents.

Based on a quarterly payout of five cents, the shares have a dividend yield of 2.24%.

For the 12-month period ended June 30, KeyCorp's ROA was 1.06%, while the company's ROE was 8.46%.

KeyCorp is one of the best-positioned banks in the wake of the Federal Reserve chairman Ben Bernanke's latest move to stimulate the economy, by increasing the central bank's purchasing of long-term bonds, in an effort to push long-term rates below their already historically low levels. With the target federal funds rate in a range between zero and 0.25% since the end of 2008, most banks have already received most of the benefit of lower funding costs, and are continuing to see their net interest margins squeezed as assets reprice.

Unlike Wells Fargo (WFC), which according to Guggenheim Securities analyst Marty Mosby "has the most margin compression today expected over the next year," as the company has a large percentage of assets with original maturities of greater than three years, that are "repricing down now, lower than they were three years ago," KeyCorp has already experienced the bulk of its Fed-driven margin pain.

The company's second-quarter NIM narrowed to 3.06%, from 3.16% the previous quarter, and 3.19% a year earlier.

Credit Suisse analyst Craig Siegenthaler on Sept. 6 said that he expects KeyCorp's "core NIM to experience the largest improvement in the industry given (1) significant debt retirement and refi activity since June, (2) significant CD repricing in 3Q12 and (3) benefit from credit card portfolio acquisition."

KeyCorp in August announced it had acquired $725 million in Key-branded credit card assets from Elan Financial Services, taking on about 400,000 consumer and business accounts.

Siegenthaler has a neutral rating on KeyCorp, with a price target of $9, but said he expected the company's "3Q12 and 4Q12 EPS to beat market expectations, and believe investors will increase EPS estimates for 2013/2014 in 2H12."

KEY Chart KEY data by YCharts

Interested in more on KeyCorp? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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KEY $14.88 -0.53%
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