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Bank of America & Wells Fargo: Where Are They Now?

Bank Of America: A Solid Investment

Summary

  • BAC has sufficient regulatory capital and I expect the bank to keep increasing capital returns.
  • BAC’s main business lines are showing robust growth in net income.
  • The bank’s credit profile is strong and getting stronger.

With a better credit profile and regulatory approvals, Bank of America shareholders will be seeing more dollars.

Bank of America (NYSE:BAC) recently ramped up its capital return program for shareholders. The Fed OK'd the bank's capital return program on the heels of passing its Comprehensive Capital Analysis and Review (CCAR) for 2016. With an increase in the dividend to $0.075 on a quarterly basis, BAC now pays $0.30 per year to shareholders; that equates to a yield of 2.1% with BAC's share price as of writing. On top of that, BAC's board authorized the repurchase of $5 billion in common stock over the next year. The $5 billion in repurchases would eliminate 345 million shares at BAC's current price and provide support to the stock price going forward.

Recent Results

What I like from the latest quarter is that BAC's business lines experienced growth in net income across the board save 'All Other' activities, which are not core to the bank's profitability and include hedging activities, equity investments, and its international card business. Global Markets led the way with a 42% increase in net income followed by Global Banking with a 21% jump in net income... READ MORE



Wells Fargo's Bad Loans: Should Investors Be Concerned?

Summary

  • Wells Fargo’s stock price has trended lower with diminished earnings.
  • Net charge-offs have increased for Wells Fargo.
  • There’s more than meets the eye with Wells Fargo’s credit quality.

Investor sentiment has turned on Wells Fargo & Co. (NYSE:WFC) and its stock now trades 18% off its 52-week high. WFC has been hurt by the interest rate environment like other banks and a declining interest rate margin has weighed on its earnings. Just recently for Q2 2016, earnings fell year-over-year to $5.6 billion from $5.7 billion; on an EPS basis for the same period, earnings fell from $1.03 in Q2 2015 to $1.01.

The drop in earnings was partly a function of increasing charge-offs. Charge-offs are loans that banks believe they will not recollect. Net charge-offs reflect those loans that were written off but adjusts for those loans that were later recollected. In WFC's case for Q2 2016, net charge-offs jumped to $924 million from $650 million in Q2 2015. That's an increase of $274 million or 42% on a percentage basis. Perhaps more importantly, as a percentage of total loans, net charge-offs increased 9 basis points to 0.39% from 0.30% a year ago. So what's driving this increase? Let's explore it further... READ MORE

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