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Downgrading Two of Four 'Too Big to Fail' Banks

NEW YORK (TheStreet) -- On March 7, the Federal Reserve announced its results of mandated stress tests for the 18 largest bank holding companies. Periodic stress tests are a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Federal Reserve's implementing regulations. I am not going to summarize the results of these stress tests except to say that the four "too big to fail" money center banks passed their tests.

Today I am providing additional stress measures for these major money center banks based upon data from www.ValuEngine.com, weekly charts, and my proprietary models and from stock specific data available from the FDIC Quarterly Banking Profile for the Fourth Quarter of 2012.

The last time I profiled the four "too big to fail" was on Feb. 6, in The 'Too Big to Fail' Banks Remain Buy Rated Post-Earnings. The biggest change since then is that two of the four have been downgraded to hold from buy according to ValuEngine, which implies that additional stresses are evident based upon our measures.

Overall we begin the week under a ValuEngine Valuation Warning with 65.5% of all stocks overvalued and with the finance sector 18.6% overvalued.

Bank of America (BAC) ($12.07 vs. $11.88 on Feb. 6) remains buy rated with the stock 6.9% undervalued with a one-year price target at $12.81. BAC opened Friday at a new multi-year high at $12.44, a level not seen since May 2011. The stock has gained 49.8% over the last twelve months with a reasonable twelve month forward P/E ratio at 11.42.

BAC has a neutral weekly chart profile with declining momentum with the stock above its five-week modified moving average (MMA) at $11.56 and the 200-day simple moving average (SMA) at $11.73. My semiannual value level lags at $9.01 with a monthly pivot at $11.54 and annual risky level at $17.07.

FDIC data shows that BAC increased its total assets by 16.6% to $1.69 trillion in Q4 sequentially. The bank has an asset to risk based capital ratio of 9.99% up from 9.69% in Q3, which is a sign of increased stress as risk based capital is supporting assets increasing at a faster pace making this "too big to fail" bank even bigger.

Stock quotes in this article: BAC, C, JPM, WFC 

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