|Bank of America CEO Brian Moynihan|
NEW YORK ( TheStreet) - While it may seem like a bad time to sell Bank of America's ( BAC) shares, there are other similarly-valued bank stocks to be found with a much less downside risk for investors. Shares of the nation's largest bank holding company closed at $6.19 Friday, and even though they were up 5% last week, the shares were down 53% year-to-date. Following a second-quarter net loss to common shareholders of $9.1 billion, or 90 cents a share, Bank of America will announce its third-quarter results on Tuesday, with analysts polled by FactSet expecting the company to post earnings of 28 cents a share.
Bank of America's shares traded on Friday for less than half the company's June 30 tangible book value of $12.65, according to SNL Financial. The shares were also historically cheap to forward earnings, trading for just 5.6 times the consensus 2012 EPS estimate of $1.12, according to analysts polled by FactSet. In comparison, as of Friday's market close, shares of Citigroup ( C) were trading for 0.6 times tangible book value and six times the consensus 2012 earnings estimate, according to SNL Financial, while the remaining "big four" members JPMorgan Chase ( JPM) traded just below tangible book and for 6.1 times forward earnings, and Wells Fargo ( JPM) traded for 1.5 times tangible book and 7.9 times the consensus forward earnings estimate. Digging just a little deeper shows that Bank of America is actually held in much lower regard than Citi, despite their similar valuations relative to book value. Bank of America's tangible common equity ratio was 5.87% as of June 30, while Citigroup's was a much higher 7.52%, which was the highest among the "big four" U.S. bank holding companies. When comparing the increasingly important Tier 1 common equity ratios, which regulators are focusing on as the largest banks work on meeting the enhanced Basel III capital requirements, Bank of America was the lowest among the "big four" as of June 30, at 8.23%, while Citi was again highest, at 11.62%, according to SNL. Here are 5 reasons to sell Bank of America now:
Staite said that investors were looking for the company to come "closer to meeting full Basel III requirements by the end of 2012." Otherwise, according to the analyst, Bank of America would face rising funding costs and lower net interest margins, "making it less competitive." So the prospect of a dilutive capital raise is on the table for investors, at least until there are significantly more settlements of mortgage-related suits and negotiations, and a clearer estimate of the company's ultimate mortgage losses.