Bank Earnings Disappoint, but Dividends Distinguish the Best
Ongoing legal expenses and varying loan growth hindered recent earnings for major U.S. banks, but better dividend yields bring Wells and JPMorgan ahead of their peers.
Ongoing legal expenses and varying loan growth hindered recent earnings for major U.S. banks, but better dividend yields bring Wells and JPMorgan ahead of their peers.
Jim Sinegal: We have big banks reporting earnings this week, and I think the results were a little bit disappointing.
The first big problem the banks have is that legal expenses are continuing. We're five years in now post-crisis, and Bank of America, for example, reported $6 billion in litigation expenses this quarter. I think we're at a point where the costs of being big are outweighing any of the advantages the banks are gaining from scale and scope, and I think that legal expenses at some level are going to continue for the foreseeable future. I think there is a lot more to the argument at this point that the big banks are too big to manage. I think that's coming through in results and it's going to limit earnings expansion going forward.
The second big point with earnings this quarter is we're starting to see the bifurcation of developing markets versus developed markets in terms of loan growth. Bank of America being heavily exposed to the U.S. consumer is seeing falling loans across almost every category. Compare that with Citigroup where they're still seeing decent growth in Latin America and Asia. We think that's another big-picture trend that's going to affect bank earnings for years to come. Emerging-markets consumers just have a lot more room to borrow than developed-markets consumers.
The third point is on the capital front. One thing that's been positive for the banks is that capital levels at this point are good across the board. Even Citigroup, which failed the CCAR, is good from a quantitative basis. They just had some compliance issues that are preventing them from returning capital.
We think one good way to distinguish the banks right now is by dividend yield. Wells Fargo and JPMorgan are clearly the most attractive of the big banks on that basis, and we think Wells has better potential for growth going forward just because they don't have some of the legal, the regulatory issues, that JPMorgan will have. Wells Fargo has been our favorite bank for a while and remains our favorite bank, although most of them at this point are fairly valued.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.