The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Bank Results Season: Deposits back at $1.12 T, Profits below $1 on 11.5 B outstanding equity, waiting for Mortgages to explode (Bank of America Q1 2014) and hoping for no Regulation Z again!!!

CAVEAT: Visitors to the site , actually reading thru the analysis may find we are definitely avoiding groundbreaking predictions this season, especially the ones that say Wells Fargo has become a better bank than JP Morgan and Bank of America is good for the course as some blogs and analysts will tell you to. Of course, many of you would already agree talk of a big turnaround this year ,  none more believable than last year esp when it comes from the World Bank and IMF(maybe?) this year though Stiglitz trying the 2013 is out 2014 is in Corner to claim the turnaround spike is making that spiel a little mainstream.

We still believe however, Europe has fractured it again, though Equities and Struct Finance can celebrate Basel’s intervention to relax the turf for European Banks, and Emerging markets assumed to be dull has always been a long lasting folly to those who like the cocoon of the West or the North   (in North/South remember) For all practical purposes, this year should be a nothing is happening year, and we feel this industry desperately needs one such year, and that will be enough to pump equities as for the four banks we cover.  Also this is in middle of applications for Ph D at a few schools I know. 2012 and 13 unfortunately still had a lot of horns blaring on Bank street, with the 2008 buys barely digested at the four banks we call the Big Four. And yeah, you owe me a few pennies, write me and i’ll put up the payment page from Paypal in a jiffylube. And here’s what WSJ Pro will tell you for $500 a month on the internet, though the CES tried to make them see the cheap valencies of the network.

“The Tell” from MKTW

BofA Earnings: Though the bank claims $90 Bln in Mortgages and HELOCs and refuses third party origination with the Country wide troubles behind it, BofA is a distant third as far and well behind JP Morgan, US Bank and Wells Fargo as I am concerned after having been a mainstream home loan banker. This year will see it spinning out of the new BAC experience having probably achieved more than 50% over the annual cost saving targets by the end of this year, and having thrown excess baggage overboard is definitely sailing enough for it to get equity levels over its Book Value. The bank spent $6.1 Bln in Legal expenses in the year and still managed to beat last years Expenses by $ 3 Bln

The 5% increase in Net Interest Income on the year to $42.2 B is respectable but the almost 10% jump in Fee Income (Non Interest Income) something the bank would try to keep, further helped by a $5 Bln dip in Provisions as the bank achieved a good $3 B reduction in Operating Expenses to a $11 B bottomline.  Earnings were a poor 25 cents last year but this 90 cent score may help the bank get a better CCAR Test score going, and get a few dollars more in returns to investors , including 6 out of 10 major US based funds waiting for the windfall and a Treasury sale of equities with the Tangible Book Value at $13 and A BV of $20.71 per share an easy target for the markets to cross on the results apart from the build up on expectations.

The bank can probably double market cap from here challenging JP Morgan investors to start a race to $300 B in Market Cap from $165 B at year end. The reduction of 25k in employee numbers is a revelation as the mortgage Servicing industry winds up its tale of misdeeds.

The Bank still carries a Cost Income (Eff) ratio of 77% and would probably need a plan to get it under 60 on the lines of a hugely successful new BAC program. Including all STB, the bank’s NII from Lending is $26.8 B. Non Interest income includes, apart from $6 B in Investment Banking, almost all of it in Deal advisory income , includes $12 Bln from wealth and brokerage (trust in WFC)  assets , $3.8 B in mortgages and $5.8 bln from Card Fees. Service Charges have probably been aggregated across all branch sales in the $7 Bln number ad Trading account profits , mostly from Treasuries are $7 bln but the $8.17 B loss in depletions of the AFS portfolio probably account for that

Personnel expenses in the shortened $69 B game are still 50% a $34.7 B. Net loans and leases are up 3% on year after the depleted LL reserves

Risk weighted assets have actually started gaining body weight at a 7% clip to $1.33 T holding Basel III Tier I capital of $132.3 B to a 10% fully phased in (9.96) Yield on Interest assets is 3.07%. The Call is up at 0830 and if you ask us any questions we’ll call you right back

One still can’t see setting serious footprint outside the US for the next 2 years, the domestic business though likely growing a tiger in the living room . Even if the Regulation Z, qualifying mortgage standard comes to pass, his Bank will just have a golden opportunity for its newly stiffened up mortgage regime to work within the Reg Z paradigm and break out













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One comment on “Bank Results Season: Deposits back at $1.12 T, Profits below $1 on 11.5 B outstanding equity, waiting for Mortgages to explode (Bank of America Q1 2014) and hoping for no Regulation Z again!!!

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