NEW YORK (TheStreet) -- Investors have reset their sights on big banks such as Citigroup (C) and Wells Fargo (WFC) after they redeemed themselves by paying back the government's bailout money, but three of their smaller rivals are more attractive as investments. A fourth bank, rebounding from a loss, warrants waiting.Shares of Citigroup and Bank of America ( BAC) have fallen in the past month, even though a brace of large banks fully repaid the government's Troubled Asset Relief Program, or TARP. Wells Fargo has risen marginally. Investors are expecting big rebounds from the country's largest banks, with Thomas Villalta, manager of the Jones Villalta Opportunity Fund, saying Bank of America's stock could double this year. The following four banks are worthy of being placed on investors' watch list. Data were provided by SNL Financial.
The company is scheduled to report fourth-quarter earnings Monday. For investors with faith that the company can generate sufficient earnings to continue building capital through earnings and slowly repay TARP without a secondary common offering, this is a bargain entry point.
City National is set to report fourth-quarter earnings after the stock market closes today. The company has continued to earn money through the crisis, boosted tier 1 capital in December in a way that didn't dilute common shareholders, and then followed up with a major acquisition for next to nothing, with the FDIC backing losses from acquired assets. With the recent rise in the shares, management's aggressive move to take advantage of the crisis and expand during the economic recovery, City National appears to be an excellent long-term play.
The shares closed at $10.52, or slightly above book value, on Monday, down 6.5% so far this month and 11% over the past year. With the capital increase and TARP repayment behind it, OceanFirst was strongly capitalized, with a ratio of total equity to total assets of 9.23% as of Dec. 31, up from 6.45% at the end of 2008. The company looks like an excellent opportunity for investors willing to commit for a few years to double their money. They would receive a reasonably secure dividend of 4.55% while they wait.
The loss in the third quarter mainly sprang from charges related to Boston Private's sale for $93 million of subsidiary Gibraltar Private Bank of Coral Gables, Fla. Boston Private had purchased Gibraltar Private for roughly $255 million in cash and stock (with a cash component of $112.2 million) in October 2005. While in hindsight the Gibraltar Private acquisition looks like a disaster, the sale reduced Boston Private's nonperforming assets by about $30 million and, together with the sale of wealth advisory affiliate RINET Co., reduced Boston Private's total assets 19% during the third quarter and significantly increased the company's capital ratios. Total assets were $6 billion as of Dec. 31, and while regulatory capital ratios weren't available, Boston Private's tangible common equity ratio was 6.66%, up from 5.38% at the end of 2008. At the end of September, the company's regulatory tier 1 capital ratio was 17.66%, above the 6% required for most banks and holding companies to be considered well-capitalized. Nonperforming assets comprised 1.77% of total assets as of Dec., 30, down from 1.98% the previous quarter although, not surprisingly, up from 1.06% at the end of 2008. The company charged-off nonperforming loans totaling $18 million in the fourth quarter for an annualized ratio of net charge-offs to loans of 0.43%. Loan-loss reserves covered 1.59% of total loans as of Dec. 31. With the partial TARP repayment, significant boost in tangible common equity and escape from the drag on earnings from Gibraltar Private's nonperforming loans in South Florida, it appears Boston Private is turning a corner, although it's less compelling than the three other TARP redeemers discussed above.
In a report published before the company released its fourth-quarter results that supported her firm's "neutral" rating on Boston Private's shares and a 12-month price target of $8, Morgan Stanley analyst Cheryl Pate estimated that it wouldn't be necessary for the company to raise capital to complete its TARP repayment later this year. She said an expected "normalized" return on equity of 13% for 2013 would support a price-to-book multiple of 1.3 times. The shares closed at $7.49 on Tuesday, up 7% on the day, and sold for 1.2 times book value. -- Reported by Philip van Doorn in Jupiter, Fla.