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Earnings From 'Too Big to Fail' Banks Key Rally

NEW YORK ( TheStreet) -- The four "too big to fail" banks began 2013 with buy ratings. As March began, so did the downgrades. JP Morgan Chase (JPM - Get Report) and Wells Fargo (WFC - Get Report) were the first two downgraded to hold. JPM subsequently peaked at $51.00 on March 14, with WFC peaking at $38.20 the following day on March 15. Both still lag these highs.

Bank of America (BAC - Get Report) was the third to be downgraded to hold and the stock traded to a 2013 high at $12.94 on March 19.

Citigroup (C - Get Report) still has a buy rating despite the fact that this stock set its 2013 high to date first at $47.92 on March 11.


The four "too big to fail" banks ended 2012 with a total of $6.364 trillion in total assets, controlling 44.0% of the $14.450 trillion of total assets among all FDIC-insured financial institutions. In my judgment this concentration of assets is a potential problem for the banking system longer term.

Fed Chief Ben Bernanke tells us that these banks passed their "so-called" stress tests, but in my judgment the global exposures for these banks remain a huge unknown. For example, there are $224 trillion in notional amount of derivatives shown on the Q4 2012 FDIC Quarterly Banking Profile, and this is up 34.9% from the end of 2007 when the "Great Credit Crunch" began. In my opinion, time bombs still tick that could be similar in magnitude or worse than the "London Whale" debacle.

The finance sector is 14.3% overvalued and the four "too big to fail" money center banks are among the 24 components of the PHLX KBW Banking Index (BKX). There are only two buy rated stocks in the BKX with the other 22 rated hold. The BKX (56.87) is below its March 15 high at 57.60.


Bank of America reports its Q1 2013 quarterly results pre-market on April 17 and its EPS is estimated at 23 cents a share. BAC ($12.32) has a hold rating and is 5.8% undervalued. The weekly chart profile is neutral with declining momentum with the stocks above its five-week modified moving average (MMA) at $12.04 and above its 200-week simple moving average (SMA) at $11.75. My semiannual value level lags at $9.01 with a weekly pivot at $12.27 and monthly risky level at $13.66.

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