BB&T Corporation (BBT), Citigroup Inc. (C), Bank of America (BAC): A Smart Play On Regional Banking

Alternatives

While I like Bank of America Corp. (NYSE:BAC) and Citigroup Inc. (NYSE:C) over the long run, there are compelling reasons why I want to wait-and-see before investing in these two.

Bank of America has not produced rising revenues since 2008-2009, and even though revenues are expected to rise and stabilize this year, there is too much uncertainty surrounding the bank right now. Plus, with shares doubling in value over the past year, I think the stock may have gotten ahead of the actual improvement in the fundamentals. While I certainly agree that things are improving, such as nonperforming loans making up 2.5% of all of the bank’s loans as opposed to 2.71% a year earlier, things have not improved enough to warrant a doubling of the shares. I’d wait for a significant pullback before considering Bank of America Corp. (NYSE:BAC).

Citigroup Inc. (NYSE:C) has had the same trouble with declining revenues, and their earnings actually fell last year from 2011. Still not allowed to pay significant dividends (1 cent per quarter), there is simply too much uncertainty and risk surrounding Citigroup to make it anything but a speculative move at this point.

For a more apples-to-apples comparison, let’s take a look at another big southeast regional bank, SunTrust Banks, Inc. (NYSE:STI). At first glance, SunTrust seems cheaper than BB&T Corporation (NYSE:BBT) at 7.9 times TTM earnings versus 11.4 times. However, SunTrust doesn’t have the credit quality of BB&T and has had difficulty growing its loans and revenues lately. SunTrust is actually projected to post lower earnings in 2013, a major red flag. They also don’t pay a significant dividend yield (0.71%), and haven’t since before the crisis.

Conclusion

With a stable, high-quality, and growing portfolio of assets, BB&T is a rare bright spot among the big banks. With a dividend yield of 3%, and only 1.24% of its loans classified as “nonperforming” (half of Bank of America’s), BB&T is a way to get exposure to the improving economy via the banking system, without taking on the risk levels associated with its peers.

The article A Smart Play On Regional Banking originally appeared on Fool.com and is written by Matthew Frankel.

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