This is crunch time for the big U.S. banks.

They have steadily taken market share from their smaller brethren over the past decade and built large capital cushions with record earnings. Now, they must navigate an unprecedented period of economic stress while servicing—and showing leniency toward—hard-hit businesses and consumers.

The banks say they have never been better prepared. Investors, however, are worried about whether they can deliver and get past the crisis without being swamped by bad loans.

The sector has been hammered lately. The shares of the six top institutions— Bank of America (ticker: BAC), Citigroup (C), Goldman Sachs Group (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), and Wells Fargo (WFC)—were down an average of 15% last week and 40% for the year. With banks amounting to leveraged plays on a reeling economy, the market setback is understandable.

Plenty of risk remains. There is uncertainty about what kind of action the government or banks may take to help borrowers, such as forgiveness of interest, fee waivers, or suspension of debt payments—and what effect that will have on profits.

The standard investor playbook is to avoid banks when the economy is going into recession—especially one whose depth and duration is especially hard to predict. The 2008-09 downturn was centered in the housing market, while the current crisis appears to be hitting nearly everything at once.

And many investors would rather stick with safer sectors such as technology (where many companies sit on big cash positions), pharmaceuticals, consumer staples, and electric utilities.

Nonetheless, the big bank stocks look appealing.

“In the financial crisis, banks were part of the problem,” says Michael Mayo, the banking analyst at Wells Fargo. “Now, they can be part of the solution. They spent the past decade preparing for a time like now, so they can act as a source of strength for the economy.”

To appreciate the banks, investors may have to rely on a traditional value measure—tangible book value—rather than earnings, which are likely to come under pressure for a quarter or two as loan-loss reserves surely increase. Published 2020 earnings estimates for banks are probably too high.

JPMorgan trading on Friday at $86, was at 1.4 times tangible book, and Bank of America, at $21, was at 1.1 tangible book. The other four fell below tangible book: Goldman, at $142, and Citigroup, at $39, fetched 70% and 55% of tangible book, respectively.

Tangible book is a conservative measure of shareholder equity that excludes goodwill and other intangibles and has often proved to be a floor under bank stocks.

Mayo says investors need to set aside their wariness of the banks. “It’s night and day versus the financial crisis,” he says. “Bank balance sheets were weak, and now they’re strong. The degree of resiliency is underappreciated. I would be shocked if one of the top 10 banks needs to raise equity or cut its dividend.”

Mayo favors JPMorgan, Bank of America, U.S. Bancorp (USB), and PNC Financial Services Group (PNC), the latter pair being among the highest-quality regional banks. JPMorgan has a diversified base of consumer and commercial lending, high net-worth wealth management, and investment banking. It has produced some of the industry’s best returns and has the best management team, led by CEO Jamie Dimon, who is recuperating from heart surgery.

Bank of America has transformed itself into the country’s top consumer and commercial bank in the past decade under CEO Brian Moynihan, who has espoused what he calls “responsible growth.” The bank has had the lowest loan losses among its peers, reflecting a know-your-customer consumer-loan strategy geared toward high-quality borrowers.

“We are here to be part of the solution,” Bank of America Chief Financial Officer Paul Donofrio told Barron’s. “We’re a haven for consumers and businesses to deposit their money or keep their investments. We see ourselves as a conduit to economic activity in a time like this. For existing clients who want flexibility, we will work with them. That’s our job, and we’re in a position to do it.”

Testing the Banks

How the big U.S. banks stack up now and how their earnings could be affected by the current crisis.

Bank / Ticker	Recent Price	YTD Change	2020E EPS	Stressed 2020E EPS	2020E P/E	Stressed 2020E P/E	Price/Tangible Book	Dividend Yield	Market Value (bil)
Bank of America / BAC	$20.01	-43%	$2.96	$0.71	6.8	28.2	1.0	3.6%	$174.6
Citigroup / C	34.67	-57	8.55	4.87	4.1	7.1	0.5	5.9	72.7
Goldman Sachs Group / GS	142.20	-38	24.05	15.47	5.9	9.2	0.7	3.5	51.2
JPMorgan Chase / JPM	85.60	-39	10.76	3.84	8.0	22.2	1.4	4.2	263.1
Morgan Stanley / MS	30.41	-41	5.31	3.07	5.7	9.9	0.8	4.6	46.6
Wells Fargo / WFC	28.15	-48	3.98	1.77	7.1	15.9	0.8	7.3	115.1
Regionals
Comerica / CMA	$29.68	-59%	$6.01	3.92	4.9	7.6	0.6	9.2%	$4.2
M&T Bank / MTB	106.74	-37	13.38	10.26	8.0	10.4	1.4	4.1	13.9
PNC Financial Services Gp / PNC	88.47	-45	11.46	5.28	7.7	16.7	1.1	5.2	37.9
U.S. Bancorp / USB	33.32	-44	4.27	2.20	7.8	15.2	1.4	5.0	50.7

Data as of 3/19/20; E=Estimate

Sources: Bloomberg; Barclays; company reports

Goldman Sachs and Morgan Stanley have less lending exposure than peers, since they tilt more toward banking, trading, investment banking, and asset and wealth management. Their business mix could limit the downside in their shares from currently depressed levels.

The regional banks have been hit even harder than the largest banks, with some down over 50% this year, because of their exposure to hard-hit small and midsize businesses as well as energy.

Yet both U.S. Bancorp and PNC have less exposure to energy relative to some peers. Mayo upgraded both stocks last week to Overweight. Of PNC, he wrote that its “risk profile is lower, making it a go-to bank in times of trouble, as it was during the financial crisis of 2008.” PNC also has a valuable stake in behemoth asset manager BlackRock (BLK) that is worth about 35% of its market value.

U.S. Bancorp has a diversified model and gets only about half of its profits from traditional banking, with the rest from businesses such as payment processing and wealth management. It has historically been viewed as the highest-quality big regional.