Published Thu, 22 Oct 2015 09:30 CET by DividendYields.orgLast week, leading US banks released their Q3 results. While the broader market has shown signs of slow recovery, the Fed’s decision to puts its rate rise on hold, coupled with economic concerns and doubts about trading revenues, has chained shares of the big banks.
Bank of America comfortably beat the earnings estimate on every level. Citigroup beat earnings estimates, primarily on the back of lower legal and repositioning costs. JPMorgan Chase & Co was a negative surprise, mainly due to weak trading activities. Wells Fargo was able to overcome industry challenges and achieve revenue growth.
This article discusses Bank of America, Citigroup, JP Morgan and Wells Fargo. Their average dividend yield is 1.81%, way below the magic 3%. However, all four competitors are financially strong and possess the know-how to capitalize on investment opportunities, even in challenging times, thus guaranteeing dividend sustainability and shareholder value for investors.
Bank of America (NYSE: BAC) operates as a bank holding company through its subsidiaries, offering its clients Consumer and Business Banking, Real Estate, Investment Management, Global Banking and Global Markets services. The bank caters to retail customers, institutional investors, corporations, and governments worldwide.
General View on Q3 Earnings: Although the U.S. economy shows signs of slow progress, revenue growth remains challenging in this interest rate environment. In Q3 2015, Bank of America has grown deposits and loans across its business segments and has increased shareholder value by driving risk factors to achieving sustainable profits and returns.
Strong Q3 Results: total deposits reached $1.16 trillion, up 4.5% YoY from $1.11 trillion; wealth management loans increased by 9.76% YoY, reaching $135 billion from $123 billion, whereas global banking loans were up by 10.5% YoY to $315 billion from $285 billion; residential mortgage and home equity loans increased by 13% reaching $17billion. Furthermore, Bank of America issued 1.3 million new credit cards, up 5%; mobile banking users topped 18.4 million, up by 14% and investment banking generated $391 million in advisory fees, the second-highest quarter since the Merrill Lynch merger. In addition, long-term debt declined by nearly $6 billion, generating a low D/E ratio, while liquidity increased to $500 billion. Finally, Bank of America returned over $3 billion back to shareholders so far through common share repurchases and dividends.
Consensus Estimates: Analysts that follow Bank of America estimate an average EPS of $1.70 through 2018, up by 27.1% from the current EPS of $1.37 and an average earnings growth of 8.5% for the next five years annually. Additionally, Bank of America is well positioned to capitalize on a potential interest rise.
Citigroup (NYSE: C) is a diversified financial services holding company, operating through its Global Consumer Banking (GCB) and Institutional Clients Group (ICG) segments to provide a wide range of financial products and services to consumers, corporations, governments, and institutions worldwide. Citigroup’s network by the end of 2014 included 3,280 branches in 35 countries.
Strong Q3 Results: in Q3 2015, Citigroup’s net income reached $4.3 billion, up by 51% YoY from $2.8 billion, mainly driven by lower operating expenses (-18%), lower net credit losses (-21%) and a lower effective tax rate (30% from 41% in the same quarter last year). On the downside, revenues have decreased by 5%, down to $18.7 billion and the company’s beta is 2.04. However, Citigroup continues to operate well in a challenging environment by significantly lowering legal and repositioning costs, and earning a 10% return on tangible common equity. In terms of dividend payments, although the Citigroup’s payout ratio is extremely low, the company has raised its quarterly dividend by 400% since 2009.
Future Expectations: Citigroup has shut down or sold more than 200 branches since the beginning of 2014 and plans to exit 50 more branches by Q1 2016. The aim is to focus on the most productive urban markets and lower the headcount per branch, while retaining successful customer relationships. Furthermore, today’s investments are expected to generate a higher net interest revenue over time, including growth in active accounts, better customer engagement and higher full rate balance.
Consensus Estimates: Analysts estimate an average EPS of $6.17 through 2018, up by 39.2% from the current EPS of $4.43, while the average annual earnings growth rate is expected to be an impressive 14.65% through 2020.
|Name||Price ($)||52 wk low||52 wk high||52 wk low %||52 wk high %||Market Cap ($ b)||P/E||D/E||Payout Ratio|
|Bank of America||16.20||14.60||18.48||10.96%||-12.34%||168.92||12.06||0.93||15%|
JPMorgan Chase (NYSE: JPM) is a global financial services firm operating in investment banking, financial services commercial banking, financial transaction processing, and asset management both for consumer and small business. Currently, JPMorgan Chase’s total assets are $2.4 trillion.
General Outlook: JPMorgan Chase’s net interest margin increased to 2.16%, in spite of the low interest environment, while its consumer & community banking segment was the best-performing in Q3 as a result of an increase in loan production. The bank is not invulnerable to the impact of interest rate uncertainty in equity markets, but it generated positive flows in loan balances reaching $109 billion, up 7% YoY, mainly driven by mortgages that were up by 19% YoY. Overall, JPMorgan Chase’s results were decent, indicating that the firm has effectively adapted to the challenging macro environment. Perhaps the most impressive indicator of JPMorgan Chase in Q3 2015 results is the 15% return on tangible common equity, the highest ROE since 2007.
Financials: JPMorgan Chase’s net income was $6.8 billion, up by 21.4% YoY from $5.6 billion. Net revenue was $23.5 billion, down 6.7% from $25.2 billion in the same quarter last year, mainly due to lower corporate & investment banking (CIB) market revenue and lower mortgage banking revenue. Net interest income was $11.2 billion, down 1% YoY due to lower investment securities balances and lower trading net interest income.
Consensus Estimates: Analysts estimate an average EPS of $6.65 through 2018, up by 13.4% from the current EPS of $5.86, while the average annual earnings growth rate is expected to be 5.33% over the next five years. JPMorgan Chase has returned $2.7 billion to shareholders so far in 2015.
Wells Fargo (NYSE: WFC) is the fourth largest bank in the United States with $1.6 trillion in total assets, providing retail, commercial, and corporate banking services to individuals, businesses, and institutions. Wells Fargo’s network includes 8,700 locations and 12,500 ATMs and offices in 36 countries. Wells Fargo delivered strong Q3 results despite the volatile economic environment. The company’s diversified business model has generated growth in revenues, loans, deposits and net income, while consistently meeting the financial needs of its customers.
The GE agreement: The acquisition of GE Capital’s commercial distribution and vendor finance businesses and part of corporate finance loan and lease assets provides Wells Fargo with a unique break to capitalize on assets in businesses where GE Capital is a leader. Furthermore, Wells Fargo is expected to expand its customer base and to enhance its business relationships. The transaction is expected to close in Q1 2016. Wells Fargo plans to fund the acquisition with anticipated growth in deposits over the long-term, while over the short-term it plans to increase its borrowings to preserve its liquidity position.
Q3 Results: Wells Fargo sustained its broad-based loan growth with a diversified portfolio of total loans reaching $903.2 billion. The firm’s strong financial performance is reflected in its wealth and investment management being up by 10% YoY and 3% QoQ, reaching $606 million in a challenging equity market environment. Finally, Wells Fargo repurchased 52 million shares of common stock in Q3, while its payout ratio is 36%.
Consensus Estimates: Analysts estimate an average EPS of $4.76 through 2018, up by 14.9% from the current EPS of $4.14 and an average earnings growth of 9.34% through 2020 annually.