Ranking America's 4 Biggest Banks From Best Buy to Worst

Banking in the United States has experienced significant challenges since the 2008 financial crisis. Four major banks dominate the market: JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. These "money-center" banks are so large that they are considered "too big to fail," meaning they have developed a scale in core banking businesses that is difficult to replicate. Here, we rank these banks from best to worst buy.

JPMorgan Chase, the largest bank by assets with nearly $5.1 trillion, is considered the best-in-breed large-bank stock. CEO Jamie Dimon is widely regarded as the industry's best CEO, and the bank excels in various banking sectors, including credit card lending, investment banking, trading, payments, commercial lending, and asset and wealth management.

JPMorgan Chase's tangible common equity (ROTCE) is at the top of its peer group, with management guiding for a long-term ROTCE of 17% through a full economic cycle. The bank typically generates over 20% ROTCE, making it a premium valuation target based on price-to-tangible book value (TBV) per-share. Despite potential near-term stagnation, JPMorgan Chase offers consistent industry-leading returns and long-term stability.

Citigroup, led by CEO Jane Fraser, has made significant progress in recent years. After a turnaround effort, led by Fraser, the bank has significantly improved its performance by divesting losses and focusing on its best-performing businesses, such as investment banking and payments. Citigroup's valuation currently reflects a price-to-tangible book value (TBV) of nearly 1.3x, with the bank aiming to achieve an ROTCE of 11% to 13% in the short term.

However, long-term targets of 14% to 15% ROTCE are expected between 2029 and 2031, making Citigroup a compelling TBV-growth, ROTCE-driven story with near-term upside potential.

Bank of America excels in most banking businesses, including investment banking, commercial lending, and has the most stable, lowest-cost deposit base among its peers. However, Bank of America made a critical mistake during the pandemic by investing heavily in long-term, low-yielding bonds, which are currently dragging on earnings.

The bank's HTM portfolio yielded only 1.94% at the end of the second quarter, well below current market rates. Despite this challenge, Bank of America's deposit base remains stable and low-cost, making it a beneficiary of rising interest rates. The bank's current valuation at nearly 1.75x TBV suggests it is nearly fully valued based on returns, making it a potential long-term investment.

Wells Fargo, despite its recent success in revamping its regulatory infrastructure and addressing the phony-accounts scandal, has already performed well in the near term. With a current valuation at 1.75x TBV, the stock has reached nearly full value based on returns. While CEO Charlie Scharf has made significant strides in improving the bank's regulatory infrastructure, scaling investment banking and credit card lending remains an open question for the bank's long-term performance.

Overall, JPMorgan Chase emerges as the best buy among the four major banks, while Wells Fargo remains a mixed bag in the long-term outlook.