Financials Have Soared, Mostly Due to Trump’s Promises
The financial sector has performed the best since the elections. Higher interest rates are likely to improve banks’ margins going forward.
Since the beginning of 2016, the financial sector has been whipsawed by worries of a global recession and a low interest rate environment.
In a Reuters survey of 38 analysts, eight analysts assigned a “strong buy” rating to Bank of America (BAC), and 16 rated it as a “buy.”
In June 2016, the Federal Reserve approved Wells Fargo’s (WFC) capital plans after it determined that the bank could continue its lending program during a severe economic slump.
Bank of America trades at a PBV of 0.87x, which implies an ~14% discount to its book value.
Bank of America (BAC) reported a 11% yearly gain in trading revenues in 4Q16.
In 4Q16, Wells Fargo’s (WFC) Wealth Management unit recorded profits of $653 million, 10% higher year-over-year while its revenues rose 2.5% to $4.1 billion.
Since Donald Trump’s presidential victory, Wall Street analysts have raised their forecasts for the major banks’ (XLF) net interest margins as they anticipate rising interest rates and economic growth.
Wells Fargo (WFC) seems fairly secure with respect to risks arising from energy-related loans, as its $14.8 billion energy loan portfolio comprises ~1% of its total loan portfolio.
Along with Wells Fargo and Bank of America, JPMorgan Chase (JPM) and Citigroup (C) have also been struggling with compressed margins and are hoping for another rate hike.
Since the 2008 financial crisis, Wells Fargo and Bank of America have been focusing extensively on expense control mechanisms.
From 2014–2016, Wells Fargo’s (WFC) loan portfolio grew 13%, second only to JPMorgan Chase’s 16% loan growth.
President Donald Trump strongly supports the idea of relaxing regulatory burdens for the financial sector.
In 2016, Wells Fargo’s (WFC) revenues rose 3% to $88.3 billion, while revenues of Bank of America (BAC) grew 1% year-over-year to $83.7 billion.
Like other banks, Bank of America (BAC) and Wells Fargo (WFC) stand to benefit from interest rate hikes. Net interest income forms ~50% of their revenues, and rising interest rates could drive growth.
Fiserv is trading at a PBV of 9.4x and a one-year forward PE of 27.7x. Fidelity Information Services and Jack Henry are trading at discounts.
In 4Q16, Fiserv’s Payments and Industry Products segment delivered strong internal revenue growth of 6%.
Fiserv’s 4Q16 net income of $215 million was 14% higher YoY.
Fiserv reported adjusted earnings of $1.16 per share for 4Q16—21% higher YoY.
Since the beginning of 2016, low interest rates and fears of a global recession have whipsawed the financial sector.