Bank of America Corp (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc (C) Are “Builder-Distributors,” Says Bernstein

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Bernstein has made a new list for large-cap banks in order to better assess their workings over the next five years

Following the slowdown in the credit market, Bernstein has come up with its own taxonomy for large-cap banks. The equity firm has divided these banks into sub categories on the basis of their expected performance over the next five years. The categories include “quality compounders,” “aspiring quality compounders,” “over-capitalized low earner,” and “builder distributors.”

Wells Fargo & Co. (NYSE:WFC) and U.S. Bancorp (NYSE:USB) fall within the first category, which also consists of BB&T Corporation (NYSE:BBT), PNC Financial Services Group Inc. (NYSE:PNC) and SunTrust Banks, Inc. (NYSE:STI). Regions Financial Corp. (NYSE:RF) is the only financial institution in the overcapitalized low-earner category, while the builder distributor category consists of Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM).

Bernstein expects these banks to provide handsome regulatory capital returns this year as well as next year owing to constrained balance sheet growth, lower payouts, and additional profits from utilizing kickers. The growth stories could be very well-poised in the near future given the Comprehensive Capital Analysis and Review (CCAR) is within the prescribed threshold.

On the Bank of America front, it has reportedly settled the case with the Federal Home Loan Bank of Seattle for $190 million. The lawsuit was regarding mortgage-related complaints. The bank is also a recognized institution on Bloomberg’s gender equality index now.

According to Thomson Reuters, Bank of America has 10 Strong Buy, 16 Buy and 5 Hold recommendations currently. The 12-month mean consensus price target for the stock is $17.47, reflecting 21.66% upside potential over its closing price of $14.36 yesterday.

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