Are Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NSYE:WFC) Good Investment Opportunities?

From a contrarian investment point of view, it seems that Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NSYE:WFC) are at a good place to consider some serious investing in the companies, as there is still a stain on all the banks, but it’s getting a little clearer and better for them, which means they could be poised for some significant upward movement in share prices for those getting in before the potential price movements begin for the financial institutions.

Of course if investing were as simple as that, everyone would be wealthy.

There are so many variables involved in how the banks will perform, that it’s really impossible to know in any way whether they will truly perform well in the near term, and of course even more uncertain in the long term.

For example, the huge hit the banks are taking on profits as a result of new regulations in relationship to overdraft fees and other revenue-generating products makes it uncertain as to how they’ll perform with that large revenue stream (and others) cut down to a much smaller part of profits than they have been. Where will they make it up? Will making it up create more risky moves than would be prudent for the banks at this time? In other words, are they going to rely on the investment banking side to generate the revenue? That has the potential to backfire in a big way if the idea of reinstating Glass-Steagall gets any traction at all. While that’s not considered a real possibility at this time, any more major negative news or circumstances coming out of the banking industry could easily push it over the top and become the law again.

Another reminder of the fragility of the big banks came when Citigroup tried to raise capital last week and found they weren’t able to sell the stock near for what they wanted, and the Treasury refused to sell their shares at such low prices which would have resulted in losses for the taxpayers; a politically unacceptable event.
 
In the long term, earnings at the four large banks have a lot of upward potential, although we’ll probably have to go through a year or two to really know what the effects of the economy and new regulations have on those earnings.

What investors are looking at for the banks is profits projected for 2011 and normalized profits in 2012. All the banks, with the exception of Citigroup, are projected to trade at under nine times their projected 2011 profits and about six times their normalized earnings.

Estimated normalized profits for 2011 for JPMorgan are $7 a share, Wells Fargo at $3.75 a share, and Bank of America at $2.75 a share. If normalized profits were to have a slight rise in p/e of 10 times, that could increase the share price of all three major banks as high as 80 percent over the next couple of years.

Citigroup is by far the weaker of the four major American banks, as well as the most risky to invest in. That said, their anemic share price gives investors a great price point to come in at, with some obvious downside risk, but a lot more upside potential.

Short term, Citigroup isn’t a real desirable investment, as profits don’t look too good for them. The additional weight of the government on their shoulders is also a very unappealing part of the bank, which will probably wear that until the early part of 2012.

Even so, Citigroup trades at about 6.6 times estimated normalized profits for 2012, which is expected to reach 50 cents a share sometime in 2012. They also trade far below estimated tangible book value of $4 a share, with the possibility of reaching $5 a share over the next couple of years believed to be reachable by some.

While there seems to be no doubt all these banks will do good over the long term, there really is a difficulty in projecting what that long term time period will be, as there are still many things still working their way through the banking system, and with projections of the growth of the economy being downgraded recently, that will be a major factor in how long it’ll take before banking stocks truly rebound in a sustainable manner.