October 14, 2020
Yesterday we talked about earnings from Citi and JPMorgan.
Both were positive surprises on earnings and revenues.
Remember, as we discussed going into last quarter's reports, the banks have been primed by Fed and government intervention, to be profit printing machines.
So, let's take a look at the other two, of the biggest four banks in the country—Wells Fargo and Bank of America.
The results reported today were pretty much in line with estimates. But like Citi and JPM, both look a lot better than the headlines suggest.
For Bank of America, deposits were up 23% yoy. Investment banking fees were up 15%. And wealth management client balances hit record levels. If you add back the $1.4 billion they added to their war chest of loan loss reserves, their EPS gets closer to 0.70 a share, which is in line with 2019 quarterly numbers.
Wells Fargo is the worst of the bunch, by far, and may be one of the most hated bank stocks—which makes it interesting.
It's an early turnaround story, still working off the wounds of an account churning scandal from many years ago. And for a CEO that's only a year on the job, he has been given the opportunity to take all the medicine—to pull forward all the losses. There is no better time than in a global crisis (especially when the Fed has your back) to put all the bad news you can muster on the table. And it looks like CEO Charlie Scharf is working on it.
Wells put up $2 billion in net income in the third quarter, after taking $2.4 billion in charges. That includes booking losses to the tune of $961 million for "customer remediation" (refunds to customers for overcharging accounts) and $718 million for "restructuring charges" (severance payments). And it realized $769 million for credit losses, against a war chest of more than $20 billion in loan loss reserves.
As we discussed yesterday, assuming a continued economic recovery, the banks will ultimately distribute a lot of their loan loss reserves to shareholders. In the case of Wells Fargo, that's over $20 billion.