Here’s my post on the big four U.S. banks: JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America. I go over third quarter results and what’s happen for the big banks.
Reposted from Seeking Alpha. The full article is available here.
- The big banks are hated. The negative sentiment creates an good entry point.
- Once dividends and buyback restrictions are lifted, the space could attract more investors.
- Q3 numbers suggest that banks are well-positioned to operate in an uncertain environment.
- If the economy improves and the banks can release some of the reserve set aside.
This is a brief article on the four main big U.S. banks and its recent results. Earnings season has come and gone for America’s biggest banks. The results were better than expected but the sentiment is still negative. There’s no love for banks and to be fair they are hard to love. The combination of ultra-low rates, the pandemic, a recession, credit issues, the election, and regulations is not the cocktail that attracts investors. The Feds has also announced that it was extending restrictions on share repurchases and dividends for the largest banks—those with more than $100 billion in assets—for at least one more quarter. Buybacks historically accounted for roughly 70% of the banks’ capital return to shareholders.
The shares of Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) fell after earning release. 2020 hasn’t been a good year for bank investments. The KBW Bank index (BKX) is down 30% year-to-date. To summarize, earnings have surprised to the upside as robust trading activity helped offset lower net-income margins, and profits weren’t crimped by having to add billions to reserves to protect against bad loans. But the problem with banks is often what you don’t see. Trust is important. Insurance companies and banks are often considered black boxes. You don’t know with certainty if you can trust the balance sheet. Accounting and disclosures are opaque. Deutsche Bank (DB) trades at a paltry 0.3 times book value. Accounting can conceal more than it reveals about economic reality. Do bank’s financial statements provide a meaningful clue about its risks?
Banks are integral to how our system functions. Bank results are akin to taking the pulse of the economy. You get a diagnosis on how things are doing. Without getting deeply technical on how a bank functions, they are one of the organs that decide how much money circulates in the economy. When consumers pay down loans, that money gets recycled into new loans. A healthy bank system is core to a healthy economy. Look at Europe. The old continent desperately needs its banks to function better. Despite its flaws, I fundamentally believe the U.S. banking system is the best in the world. They are excellent at their primary function of allocating capital to the most promising opportunities which leads to an overall increase in the standard of living.Continue reading “The Big Four”