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TheStreet Open House

Four Too Big To Fail Banks Set Multi-Year Highs

Stocks in this article: BACCJPMWFC

NEW YORK ( TheStreet) -- The four 'too big to fail' money center banks became bigger in the third quarter controlling 44.34% of the $14.6 trillion of assets in the banking system, up from 43.95% in the second quarter.

JPMorgan (JPM) increased total assets to $2.12 trillion or 14.5% on the total, while Bank of America (BAC) decreased assets to $1.62 trillion or 11.1% of the total. Wells Fargo (WFC) stayed in third place increasing assets to $1.38 trillion or 9.5%. Citigroup (C) stayed in fourth place raising total assets to $1.35 trillion or 9.2%.

Bank of America ($15.73) set a new multi-year high at $15.98 on Nov. 25, maintains a hold rating, and is 27.1% overvalued. Since the end of the second quarter of 2008 this 'too big to fail' money center bank has reduced assets by $164.7 billion to a total of $1.62 trillion, which is 11.1% of the total assets in the banking system. My semiannual value level is $10.09 with a quarterly pivot at $15.30 and annual risky level at $17.07.

Citigroup ($52.62) set a multi-year high at $53.68 on Nov. 25, maintains a hold rating, and is 45.9% overvalued. Since the end of the second quarter of 2008 this 'too big to fail' money center bank has increased assets by $21.7 billion to a total of $1.35 trillion, which is 9.2% of the total assets in the banking system. My semiannual value level is $47.14 and a quarterly pivot at $52.56 and monthly risky level at $55.23.

JPMorgan ($56.98) set a multi-year high at $58.14 on Nov. 25, maintains a hold rating, and is 28.6% overvalued. Since the end of the second quarter of 2008 this biggest of the 'too big to fail' money center bank has become even bigger by increasing assets by $315.9 billion to $2.12 trillion, which is a way too big controlling 14.5% of the total assets in the banking system. My semiannual value level is $50.37 with a quarterly risky level at $59.44.

Wells Fargo ($44.18) set a multi-year high at $44.78 on July 23 and the recent high has been $44.74 on Nov. 26. The stock maintains a hold rating and is 23.0% overvalued. Since the end of the second quarter of 2008 this 'too big to fail' money center bank has increased assets by $40.7 billion to $1.38 trillion, which is 9.5% of the total assets in the banking system. My semiannual value level is $40.04 with a quarterly risky level at $48.05.

In total the four 'too-big-to-fail' banks have $6.47 trillion of the $14.6 trillion assets in the banking system which is a concentration of 44.3%, up from 43.9% at the end of the second quarter. In my judgment a single bank should not be allowed to control more than 10% of the total assets in the banking system, which means that Bank of America and JP Morgan should be forced to reduce assets.

Last week S&P reported that JP Morgan and Bank of America are among eight of the larger U.S. banks that could be forced to pay $56.5 billion to $104 billion to settle additional mortgage-related claims. S&P calculates that these eight banks have capital buffers of about $155 billion combined, enough to absorb the losses, and that these legal liabilities would thus not hurt banks' ratings.

Federal Deposit Insurance Corporation earlier reported the banking system earned $36 billion in the third quarter of 2013 down from $38.1 billion in the second quarter, and down 3.9% year over year, the first year over year decline since the second quarter of 2009. Second quarter earnings were originally reported at $42.2 billion so it was downwardly revised by $4.1 billion. The earnings decline was attributed to a $4 billion increase in litigation costs at one institution, lower revenue from mortgage lending, and the reduced sales of assets.

Chart Courtesy of FDIC

Comparing Third Quarter Data To Second Quarter Data

Total Assets in the banking system increased 1.3% sequentially in the third quarter of 2013 to $14.6 trillion, which is a year over year gain of 2.6%.

Residential Mortgages on the books of the banks declined by $13.7 billion in the third quarter to $1.84 trillion down 0.7% sequentially and 2.5% year over year. It appears that mortgage credit guidelines remain too tight, and that demand for mortgages has declined as rates rise.

Mortgage originations for 1 to 4 family residential real estate loans declined by 30.1% to $136.8 billion sequentially as the rise in interest rates reduced demand for mortgage refinancings. Noninterest income from the sale, servicing and securitization of mortgages declined by $4.0 billion 45.2% lower than a year ago.

Nonfarm Nonresidential Real Estate Loans rose by $9.2 billion in the in the third quarter to $1.09 trillion which is a sign that banks feel safer lending to builders of office buildings, strip malls, condos and apartments, rather than single-family homes. This portion of CRE loans is up 0.8% sequentially and 3.3% year over year.

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