NEW YORK (

TheStreet

) --

Citigroup

(C) - Get Report

was the winner among the largest U.S. banks on Wednesday, with shares rising 2% to close at $49.14.

The broad stock indices continued their upward climb with gains of less than 0.50%, while the

KBW Bank Index

(I:BKX)

was up nearly 1% to close at 58.76, with all but five of the 24 index components ending the session with gains.

In a market strategy note to clients on Wednesday, BMO Capital Markets chief investment strategist Brian Belski wrote that "investors appear to be getting a bit more selective by focusing on areas with discernible fundamentals as the market continues to climb higher despite recent sluggish economic data." Belski added that "longer-term trends continue to favor valuation factors," which include price-to-earnings and price-to-book-value ratios.

The KBW Bank Index has returned 13% this year, compared to a return of 15% for the

Dow Jones Industrial Average

I:DJI

and a return of 14% for the

S&P 500Index

(SPX.X)

.

Also see: Freddie Mac Reports Big Second Quarter Profit, Will Pay Treasury $7 Billion Dividend >>

In such a strong market environment, investors are warming up to stocks of the largest U.S. banks, which have been held back by general distrust of the industry in the wake of the credit crisis and the federal bailout. Investors may have also been shying away because of the uncertain political and regulatory environment. Nearly three years after the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed by President Obama, only about a third of the regulations based on the act have been put in place.

Despite Dodd-Frank's requirement for banks to have stronger levels of capital in line with the Basel III agreement, some bank regulators have been arguing for even higher capital requirements. Politicians have chimed in as well, with Senators Sherrod Brown (D., Ohio) and David Vitter (R., La.) last month sponsoring the

Terminating Bailouts for Taxpayer Fairness Act

, which would require "megabanks" with total assets of over $500 billion to raise capital levels to at least 15% of total assets.

Under the Brown-Vitter proposal, the United States would "walk away" from the Basel III agreement -- negotiated between the U.S. and 26 other countries, including all key European economies, Russia, China, Brazil, and India -- and do away with risk-based asset calculations for capital ratios. While most analysts see little chance of the U.S. Congress walking away from Basel III and such a huge part of Dodd-Frank, Brown-Vitter demonstrates how hard it is for the industry to move past the credit crisis. After all, politicians have nothing to lose while bashing the big banks, and while doing so, they get to be on television.

Also see: KeyCorp Run-Up Is Unjustified, Says KBW >>

Most of the largest U.S. banks are trading at very low multiples relative to large profitable companies in most other industries:

  • Citigroup's stock trades for 9.2 times the consensus 2014 earnings estimate of $5.32 a share, among analysts polled by Thomson Reuters.
  • Shares of JPMorgan Chase (JPM) - Get Report rose over 1% on Wednesday to close at $49.76. The shares trade for just 8.4 times the consensus 2014 EPS estimate of $5.94.
  • Bank of America (WFC) - Get Report was up 1% to close at $13.02. The shares trade for 10.1 times the consensus 2014 EPS estimate of $1.29.
  • Shares of Wells Fargo (WFC) - Get Report were up 1% to close at $38.45. The shares trade for 10.1 times the consensus 2014 EPS estimate of $3.81.
  • Shares of Goldman Sachs (GS) - Get Report were up 1% to close at $150.26. The shares trade for 9.8 times the consensus 2014 EPS estimate of $15.27.
  • Morgan Stanley (MS) - Get Report was up nearly 2% to close at $23.67. The shares trade for 9.4 times the consensus 2014 EPS estimate of $2.53

Also see: HSBC 'Best Counterparty in Global Banking Today' >>

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

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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.