Bank of America: Job Growth Winner

NEW YORK ( TheStreet) -- Bank of America ( BAC) was the winner among the largest U.S. banking names on Wednesday, with shares rising 4% to close at $8.00.

The broad indexes all saw gains after ADP reported that the U.S. economy added 216,000 private sector jobs during February, increasing from a revised 173,000 gain in private sector employment in January. Small businesses accounted for 108,000 of the new full-time positions in February. ADP said that "manufacturing employment increased 21,000, while construction employment advanced 16,000 and the financial services sector added 14,000 jobs during that period."

The The KBW Bank Index ( I:BKX) was up 2% to 44.55, following Tuesday's 3% decline. All 24 index components saw midday gains, except for Commerce Bancshares of Kansas City, Mo., which was down slightly to $37.87.

Bank of America's shares have now returned 44% year-to-date, following a 58%% decline in 2011.

Bank of America has already announced that it has not included any plans for an increased dividend or for share buybacks this year in the capital plan submitted to the Federal Reserve for the regulator's annual stress tests.

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RBC Capital Markets analyst Joe Morford rates Bank of America "Outperform," with a $10 price target, saying in his review of the company's annual 10-K filing on Feb. 29 that the company "remains focused on building capital with a target Basel III Tier 1 common ratio of 7.25-7.50% by year end 2012," and that the company has been "opportunistic in repurchasing its own debt (at a discount) as a means to boosting capital."

Of course, the company's "mortgage-related issues remain an overhang," according to Morford, with repurchase demands by Fannie Mae and Freddie Mac rising "22% sequentially in 4Q11 to $14.3B, partly because GSE standards and resolution processes have become increasingly inconsistent with past precedent and BofA's interpretation of its contractual liabilities."

For private mortgage putback claims, Bank of America "reiterated its projection that the total losses on its non-GSE representations and warranties exposure may ultimately exceed existing accruals by up to $5 billion (unchanged from 3Q11)," which assumes the company's June 2011 $8.5 billion settlement of private investors' putback claims for Countrywide loans is approved, which now seems likely, since "BofA won a favorable ruling in an appeals court confirming that the proposed settlement will be reviewed in a state court and not a federal one where investors could potentially 'opt out' of the final pact to pursue their claims individually."

Morford estimates the company will earn 75 cents a share in 2012, followed by EPS of $1.15 in 2013.

Bank of America's shares trade for just 0.6 times tangible book value, according to HighlineFI, and for 11 times the consensus 2012 earnings estimate of 71 cents, among analysts polled by Thomson Reuters.

Interested in more Bank of America? See TheStreet Ratings' report card for this stock.

Shares of Citigroup ( C) rose 3.5% to close at $33.24.

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Citi's shares have now risen 26% year-to-date, following a 44% decline in 2011.

Unlike many other large bank holding company's expecting to increase their dividend and announce significant share buybacks following the completion of the Fed's stress tests next week, Citigroup's potential for an increased capital return to investors is a complicated story.

Citi CFO John Gerspach said during a presentation at the Credit Suisse Financial Services Forum on Feb. 8 that "only $11 billion of our $51 billion in deferred tax assets is currently included in Tier 1 Common," and also that "math would suggest that about $24 billion of our regulatory capital should be eventually released as Citi Holdings winds down."

That's quite a bit of regulatory capital that could eventually be released, however, investors shouldn't count on those figures affecting the stress test results, and shouldn't expect a large dividend increase from Cti.

Barclays Capital analyst Jason Goldberg has an "Overweight" rating on Citigroup, with a $46 price target, but said on Feb. 27 that the company's "ability to pay regular quarterly cash dividends of more than $0.01 per share, or to redeem or repurchase equity securities or trust preferred securities, is currently restricted," because the Federal Deposit Insurance Corp. still holds trust-preferred shares that were issued to the regulator when Citigroup exchanged its TARP preferred shares in 2009.

The FDIC was holding about $3 billion in Citigroup trust-preferred as of Dec. 30.

Goldberg said federal regulators could decide to waive the restriction on Citi's dividend payout, but in regard to the deferred tax assets, the analyst said "in general, C would need to generate approximately $111bn of taxable income during the respective carry forward periods to fully realize its U.S. federal, state and local DTAs."

So the tremendous potential to unlock the value in the DTAs is a story that will play out over the next several years.

Meanwhile, Citigroup remains a value play, based on low price multiples. The shares trade for a low 0.7 times tangible book value and eight times the consensus 2012 EPS estimate of $3.99. The consensus 2013 EPS estimate is $4.79.

Out of 27 analysts covering the company, 20 rate Citigroup a buy, four have neutral ratings, two analysts rate the shares "Underperform," and one analyst recommends selling the shares.

Interested in more Citigroup? See TheStreet Ratings' report card for this stock.

Shares of Comerica ( C) rose over 3% to close at $29.44.

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Comerica has now returned 14% year-to-date, following a 38% decline during 2011.

The shares trade for 0.9 times tangible book value and 13 times the consensus 2012 EPS estimate of $2.31. The consensus 2013 EPS estimate is $2.61.

Comerica was included among five bank holding companies that Jefferies Analyst Ken Usdin said on Wednesday were well positioned to pay out a large percentage of earnings during 2012, through dividends and share buybacks.

Usdin estimates that after the bank stress tests are completed next week, the Dallas lender will raise its quarterly dividend by 50% to 15 cents a share, and also buy back 6 million shares this year for $166 million, for a combined dividend and repurchase payout ratio of 60%.

Usdin has a neutral rating on Comerica, with a $28 price target.

Interested in more Comerica? See TheStreet Ratings' report card for this stock.

Shares of Zions Bancorporation ( ZION) rose over 2% to close at $18.33.

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The shares have returned 13% year-to-date, following a 33% decline in 2011.

The shares trade just below tangible book value and for 13 times the consensus 2012 EPS estimate of $1.43. The consensus 2013 EPS estimate is $1.79.

Rather than focusing on a return of capital to investors, like so many of the large banks undergoing the Fed's stress tests, Zions is focused on repaying $1.4 billion in federal bailout funds received in November 2008, through the Troubled Assets Relief Program, or TARP.

The company has included TARP repayment plans in its stress test data submission to the Federal Reserve, and Zions CFO Doyle Arnold said at the Sandler O'Neill & Partners West Coast Financial Services Conference on Tuesday that the coming redemption of preferred shares held by the government "improves things by $70 million after tax, just from the dividend reduction."

While Usdin said that Zions was "hopeful that they will not have to issue equity" in connection with an exit from TARP, the analyst said his assumptions for Zions currently imply a moderate capital raise of $350 million.

Interested in more Zions Bancorporation? See TheStreet Ratings' report card for this stock.


-- 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 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.