We are initiating a new position in Citi (C), buying 1,600 shares at $46.54. At the same time, we will exit our position in Bank of America (BAC), selling all 6,700 shares at $14.61. Following the trade, C will comprise 3.17% of our portfolio.

Shares of BAC are trading nearly 35% higher since their mid-February low of $10.99, having closed their discount to tangible book value (TBV) to under 10% (or 0.91x first-quarter TBV of $16.17). We view Citi as a better large-cap bank play at a more compelling valuation, with shares trading at a 26% discount (or 0.74x) to first- quarter reported TBV of $62.59 a share.

We have become incrementally encouraged by Citigroup's increased regulatory transparency/visibility and discouraged by Bank of America's lack of regulatory transparency/visibility. While interest rates, trading/banking activity, loan/deposit growth and operational efficiencies are deeply important to large- cap banks, regulatory stability and support have emerged as equally, if not more, important factors post-financial crisis. Regulators can single-handedly determine a bank's future, whether it be through controlling their capital return programs, enforcing penalties and/or outright overhauling a bank's entire business model.

Two weeks ago, we learned that Citigroup was the only big U.S. bank whose "living will" plan (which details what it would do in a worst-case scenario to collapse without needing to be bailed out) gained Federal Reserve and FDIC approval. Since failing the stress tests two years ago, the bank has risen from class clown to teacher's pet.

Meanwhile, Bank of America -- which failed its stress test last year -- failed to pass the "living-will" test, with regulators arguing (in a 25-page letter) that Bank of America is too complex for its own good: The liquidity profile of its parent company is quite different from the liquidity profiles at its five major subsidiaries, some of which lack sufficient liquidity or an adequate process to shift liquidity to its parent in a severe-stress scenario.

We appreciate Citigroup's efforts to shrink its assets (it is now the fourth-biggest U.S. bank by assets, down from No. 1), simplify its operations (consolidating its subsidiaries) and strengthen/standardize its internal reporting/oversight mechanisms since the financial crisis, and in particular, over the last two years. Since its peak in 2007, it has shed over 26% of its assets and continues to sell or shutter businesses, and now has fewer than 800 branches in the U.S., down from more than 3,500 in 2007.

Importantly, for a stock trading at just 0.74x TBV, credit quality remains outstanding: Consumer early delinquencies, which had already been reduced to extremely low levels, were down to 1.05% from 1.15% last year and 90-day delinquencies were down both domestically and internationally.

We are also impressed by the company's better-than- expected total trading revenue (which declined by the lowest amount vs. its large-cap U.S. banking peers), expense management (with a 61.3% efficiency ratio, 620 basis points higher year over year), and solid Tier 1 Common Equity (CET 1) ratio of 12.3%, which is far stronger than expected and represents core capital strength. Our $55 price target represents 0.8x 2016 consensus TBV, which still represents a major discount to peer-group average of 1.5x 2016 consensus TBV.

Regards, Jim Cramer, Portfolio Manager & Jack Mohr, Director of Research - Action Alerts PLUS DISCLOSURE: At the time of publication, Action Alerts PLUS was long BAC.