What Every Bank Wants Investors to Know


Source: Andrew Magill, Flickr. 

Every individual likes to see themselves as unique. Banks are no different.

Read through any presentation or earnings release from a major lender, and you'll come across an extended conversation about their culture and what distinguishes them from the pack.

But when all is said and done, and not unlike certain cliques in high school, the very attempts to separate themselves are often what make different institutions look so alike.

Investors and analysts were given a textbook example of this at last week's Barclays Global Financial Services Conference, at which many of the nation's leading financial companies presented.

If there was one theme underlying all of the presentations, it was revenue diversification -- and an obsession with fee income in particular.

"The diversity of the businesses that we have has allowed us to not only benefit from that recurring stream of net interest income from our deposit gathering capabilities and our lending capabilities, which has led to fee income ... which was just over 50% during the second quarter of 2013." Bruce Thompson, CFO of Bank of America (NYSE: BAC  ) .

"Our persistent performance reflects our strong revenue diversification with a 50/50 split between spread and fee income. ... We've outperformed our peers on fee income to average assets in both the second quarter and over the past 10 years, reflecting our diversified sources of fee income." Timothy Sloan, CFO of Wells Fargo (NYSE: WFC  ) .

"[T]his is the right time for us to really be focusing on fee income." William Demchak, CEO of PNC Financial.

"Fee income is strong, substantially stronger than our peers at 44%." Kelly King, CEO of BB&T.

"Fee income represents about 46% of our total revenue. ... The diversity of our fee businesses and its overall relative contribution to revenue is a key factor in our historic and currently relatively high profitability." Kevin Kabat, CEO of Fifth Third Bancorp (NASDAQ: FITB  ) .

"Key derives over 40% of our total revenues from fee-based businesses. ... Our broad product set, industry expertise and targeted approach allow us to do more for our clients, winning more of their business and taking share in the market as evidenced by commercial loan growth and certain fee income categories." Donald Kimble, CFO of KeyCorp (NYSE: KEY  ) .

All of these executives have hit on the same problem, though: Net interest income, the other primary component of a bank's revenue, will be difficult if not impossible to grow over the foreseeable future. "Assuming no significant changes in interest rates," PNC's Demchak noted, "we expect core net interest income -- that is, net interest income other than purchase accounting accretion -- will be difficult to grow."

The net result is that, while analysts and commentators have chastised the complexity of banks over the last few years, and lenders like Bank of America have even taken considerable strides to simplify their operations, the obsession with fee-based revenue diversification demonstrates that, for better or for worse, we are far from returning to a world of slimmed-down, traditional banking.

It's not too late to find cheap bank stocks
Have you missed out on the massive gains in bank stocks over the past few years? There's good news: It's not too late. Bargains of a lifetime are still available, but you need to know where to look. The Motley Fool's new report "Finding the Next Bank Stock Home Run" will show you how and where to find these deals. It's completely free -- click here to get started.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2641740, ~/Articles/ArticleHandler.aspx, 11/28/2014 6:11:25 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement