Bank of America Outperforms, Wells Fargo Lags among Banking Stocks
Financial institutions underperformed the broad market for several years after the 2007 recession as they scaled back their operations. However, the sector (XLF) has revived recently due to higher interest rates, credit offtake, and the reduction of structured holdings.
JPMorgan Chase (JPM) stock has generated a return of 3.9% over the last six months and 41.6% over the past year, reflecting high growth and stable performance. Over the last five years, JPMorgan Chase has returned a CAGR1 that is 20.3% higher than the broad market’s (SPY) (SPX-INDEX) growth of 11.8%.
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Bank of America (BAC) stock has risen 2.7% over the past six months and 64.6% over the past year. The bank’s CAGR for the last five years stood at 26.1%, the highest among the major US banks.
The bank’s performance was backed by its focus on core banking, credit cards, and expansion of its Asset Management business. In 2Q17, the bank posted net income of $5.3 billion, compared to $4.8 billion in 2Q16.
Wells Fargo slips
Wells Fargo (WFC) has declined 8.1% over the past six months and 10.3% over the past year. Its CAGR performance for the last five years stood at 9.5%, the lowest among the major banks and the broad markets. The bank has been mired in investigations relating to its fake account scandal, which came to light in 2016.
Warren Buffett, CEO of Berkshire Hathaway (BRK-B), cut the firm’s stake in Wells Fargo in April 2017. This move was required by Federal Reserve regulations, bringing the firm’s stake below 10%. However, Buffett is confident that the bank could recover and regain its strength over the next few years.
In 2Q17, Wells Fargo posted net income of $5.8 billion, which was 5% higher on a YoY (year-over-year) basis, on the back of $22.2 billion in revenues.
Citigroup (C) stock has appreciated 14% over the past two quarters and 47% over the last one-year period due to a revival in its operating performance. Over the past five years, the bank’s CAGR was 18.8%, aided by higher margins, a focus on its core banking business, and improving investment banking revenues.
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