Citi or Bank of America? One Stock Is Expected To Rise 50%

It was a busy earnings week for big banks, with several beating expectations.

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The two firms that exceeded revenue and other metrics were Citi and Bank of America.

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Due to SIVB’s failure, increased regulatory oversight is expected, but large banks are well prepared and we are not expecting significant changes for them. According to Stephen Biggar, Argus Research's director of financial institutions research, smaller banks will likely face a lot of additional scrutiny.

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Citi has clawed back some losses since the start of the banking crisis, rising more than 4% and up 12% in the year to date, while Bank of America has lost less than 1% and more than 8% overall since the beginning of the crisis.

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A table showing the key metrics of the two banks, including their capitalization, profitability, and deposit types, is shown below.

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As two of the nation's largest banks, Trade Algo examines what analysts have to say about them.

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'Superior resilience' at Bank of America

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"Goliath is Winning" continues to be the theme of Bank of America, Wells Fargo reported on April 18.

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Analysts at Wells Fargo led by Mike Mayo wrote that The Company's 1Q23 earnings surpassed consensus by 13% in spite of its business model, balance sheet, and funding resiliency.

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Refinitiv estimates that the bank earned 94 cents per share, higher than Wall Street's 82 cents estimate.

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According to Wells Fargo, deposits were down 2%. According to the report, BAC has the lowest cycle-to-date beta on its $1.3 trillion of interest bearing deposits (EST. 30%), suggesting that the bank has “deposit stickiness” and highlighting the change in deposit levels.

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A focus has been placed on uninsured deposits since Silicon Valley Bank collapsed, with uninsured deposits exceeding the guaranteed limit of the Federal Deposit Insurance Corporation.

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According to Wells Fargo, Bank of America also surpassed its peers in capital market revenue growth by 1% a year ago and 30% a quarter earlier.

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Bank of America's price target has been set at $45, an increase of nearly 50% from Wednesday's closing price.

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According to Argus Research, Biggar prefers Bank of America to Citi, even though both are rated "buy".

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As a result of BAC’s broad diversification, which smooths out periods of weakness in some business lines, he told Trade Algo. Trading and credit cards have driven their revenues, while lending has been weak. "The lending business is the driving force at the moment, while investment banking has been weak."

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A turn-around story for Citigroup

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Despite achieving better-than-expected net interest income, fees and expenses, Citi's earnings per share exceeded expectations by 13%, according to Wells Fargo analysts, who said Citi's Treasury and Trade Solutions unit, which "we consider to be Citi's most premium business," grew almost one third of its operating profit year over year. The unit specializes in cash management and trade finance services, and it is a division of Citi's institutional clients group.

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As we start the earnings season, we think that a significant differentiator will be the banks like Citi who have both higher [average] deposits (a slight increase week-over-week) and higher [net interest income] (+1%), and that applies to both NIM and NIM income (up 2bps).

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Based on Wells Fargo's price target of $62 from Wednesday's closing price, Citi has a potential upside of 24% over Wednesday's close - which is less than Bank of America's potential upside of 38%.

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Citi is more of a recovery story than a turnaround story, according to Biggar.

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As the new CEO takes over, the company is making major changes to improve financials, including closing off a number of far-flung international operations that weren't strategic and often added volatility to earnings streams. In addition, they lag behind peers on several financial metrics such as [Return-on-Equity] and efficiency, but under the new CEO they're making wholesale changes to improve financials.

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