Earnings From 'Too Big to Fail' Banks Key Rally

NEW YORK ( TheStreet) -- The four "too big to fail" banks began 2013 with buy ratings. As March began, so did the downgrades. JP Morgan Chase ( JPM) and Wells Fargo ( WFC) were the first two downgraded to hold. JPM subsequently peaked at $51.00 on March 14, with WFC peaking at $38.20 the following day on March 15. Both still lag these highs.

Bank of America ( BAC) was the third to be downgraded to hold and the stock traded to a 2013 high at $12.94 on March 19.

Citigroup ( C) still has a buy rating despite the fact that this stock set its 2013 high to date first at $47.92 on March 11.

The four "too big to fail" banks ended 2012 with a total of $6.364 trillion in total assets, controlling 44.0% of the $14.450 trillion of total assets among all FDIC-insured financial institutions. In my judgment this concentration of assets is a potential problem for the banking system longer term.

Fed Chief Ben Bernanke tells us that these banks passed their "so-called" stress tests, but in my judgment the global exposures for these banks remain a huge unknown. For example, there are $224 trillion in notional amount of derivatives shown on the Q4 2012 FDIC Quarterly Banking Profile, and this is up 34.9% from the end of 2007 when the "Great Credit Crunch" began. In my opinion, time bombs still tick that could be similar in magnitude or worse than the "London Whale" debacle.

The finance sector is 14.3% overvalued and the four "too big to fail" money center banks are among the 24 components of the PHLX KBW Banking Index ( BKX). There are only two buy rated stocks in the BKX with the other 22 rated hold. The BKX (56.87) is below its March 15 high at 57.60.

Bank of America reports its Q1 2013 quarterly results pre-market on April 17 and its EPS is estimated at 23 cents a share. BAC ($12.32) has a hold rating and is 5.8% undervalued. The weekly chart profile is neutral with declining momentum with the stocks above its five-week modified moving average (MMA) at $12.04 and above its 200-week simple moving average (SMA) at $11.75. My semiannual value level lags at $9.01 with a weekly pivot at $12.27 and monthly risky level at $13.66.

Citigroup reports its Q1 2013 quarterly results pre-market on April 15 and its EPS is estimated at $1.21 a share. Citi ($45.06) still has a buy rating and is 34.1% undervalued. The weekly chart profile is neutral with declining momentum with the stock above its five-week MMA at $44.12 and its 200-week SMA at $37.44. My annual value level lags at $33.19 with weekly and monthly risky levels at $45.80 and $49.88.

JPMorgan Chase reports its Q1 2013 quarterly results pre-market on April 12 and its EPS is estimated at $1.38 a share. JPM ($49.25) has a hold rating and is 13.2% overvalued. The weekly chart profile is neutral with declining momentum with the stock above its five-week MMA at $48.40. My annual value levels are $44.04 and $42.87 with semiannual and weekly pivots at $46.84 and $48.92 and monthly risky level at $51.83.

Wells Fargo reports its Q1 2013 quarterly results pre-market on April 12 and its EPS is estimated at 87 cents a share. WFC ($37.57) has a hold rating and is 9.7% overvalued. The weekly chart profile is positive but overbought with stock above its five-week MMA at $36.71. Monthly and annual value levels are $35.82, $34.17 and $32.82 with this week's risky level at $38.36.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

If you liked this article you might like

Citigroup Gives CEO Corbat 48% Pay Raise as Profitability Misses Goal

Citigroup Gives CEO Corbat 48% Pay Raise as Profitability Misses Goal

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

Why Bank of America and Goldman Sachs Shares Are Perfect Inflation Hedges

Why Bank of America and Goldman Sachs Shares Are Perfect Inflation Hedges

Stock Market Volatility Leads to Frightened Investors: Bank of America Survey

Stock Market Volatility Leads to Frightened Investors: Bank of America Survey

JPMorgan, Bank Stocks Have Room to Run Higher in Slow-Motion Economy

JPMorgan, Bank Stocks Have Room to Run Higher in Slow-Motion Economy