Bank of America Corp (BAC), Citigroup Inc. (C): Are These Three Mega-Banks Attractive for 2013?

Wells Fargo – The highest total yield

Wells Fargo had the lowest Tier 1 ratio among the three. Its third quarter Tier 1 common ratio and Tier 1 capital ratio were 9.9% and 11.5%, respectively. In the severe adverse conditions, its Tier 1 common ratio would be 7% and its Tier 1 capital ratio would be 8.7% in the fourth quarter 2014. Interestingly, Wells Fargo has experienced a decent growth in its core deposits, from $864.9 billion in 2011 to $928.8 billion in 2012. The bank plans to increase its dividend to $0.30 per share for the second quarter of 2013. The amount of stock repurchase in 2013 would also be higher than that in 2012. In 2012, it bought back around $4 billion worth of shares. Thus, if we assumed that Wells Fargo could spend $4 billion in share repurchase, its repurchase yield would be 2%. At $38 per share, Wells Fargo has a total market cap of around $200 billion. The market values Wells Fargo at 9.5 times forward earnings and 1.4 times its book value. With the new increased dividends, its forward dividend yield is 3.2%. Thus, Wells Fargo’s total yield is the highest among the three, at 5.2%.

Foolish bottom line

Among the three mega-banks, I like Bank of America Corp (NYSE:BAC) and Wells Fargo due to its high total yield, including dividends and share buybacks. Bank of America has the lowest valuation and its earnings power had been hidden by the large loan loss provision. Wells Fargo is still the most favorite bank of legendary investor Warren Buffett. He owned nearly 440 million shares in the bank, accounting for 20% of his total portfolio.

The article Are These Three Mega-Banks Attractive for 2013? originally appeared on Fool.com and is written by  Anh HOANG.

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