SunTrust Banks, Inc. (STI), JPMorgan Chase & Co. (JPM), Citigroup Inc (C): Three Solid Banking Companies to Buy

Growth in investment banking and asset management segment

Citigroup Inc (NYSE:C)‘s operating margin in investment banking saw an upsurge in the quarter ending in March. In North America, its revenue in the investment banking segment increased by 48% in the first quarter of 2013. Additionally, in this segment, its revenue from merger advisory and equity underwritings surged by 85% and 45% respectively, in the first quarter of 2013. The reason for growth in the investment banking division is because of the improvement in the U.S. equity market. Furthermore, it is expected that the rise in investment banking activities like the equity underwriting process, mergers and acquisitions will drive its profits higher for the next two years. Due to this, the operating margin in this segment will improve to 43% from the current 32%, until the first quarter of 2015.

The bank decided to sell its stake in Smith Barney, which was a joint venture with Morgan Stanley, as Smith Barney was incurring losses. Citigroup Inc (NYSE:C) received $1.89 billion in the previous fiscal year from the stake sale. It will receive $2 billion in the second quarter of this fiscal year and around $2.25 billion in 2015. Moreover, the bank’s costs will decline significantly from selling Smith Barney and it will bring in additional cash as well. Citigroup Inc (NYSE:C)’s operating margin was flat in the previous year and in the next two years it is expected to rise by 20%-25%. This will lift investors’ confidence in this stock.

Conclusion

Shrinking NPL and reduction in loan loss is a positive indicator for SunTrust Banks, Inc. (NYSE:STI). However, the decline in loan growth will spread negativity within the stock. I advise investors to hold this stock. On the other hand, cost reduction plans and increasing AUM will lift profits of JPMorgan Chase & Co. (NYSE:JPM) in coming years. Citigroup Inc (NYSE:C)’s operating margin in the investment banking segment will boost profit in the upcoming two years. Recovery in the equity market will increase merger and acquisition activities, which will likely lift the revenue. I recommend that investors buy shares of JPMorgan and Citigroup Inc (NYSE:C).

The article 3 Solid Banking Companies to Buy originally appeared on Fool.com and is written by Madhu Dube.

Madhu Dube has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM). Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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