Cut or Spend? That Was the Question for Banks This Week

JPMorgan gives its CEO a big, fat raise, while Citigroup remains intent on saving money. Meanwhile, Wells Fargo becomes less insured, Bank of America trades up a storm, and smaller banks report quarterly results.

Jan 24, 2014 at 4:00PM

Coming off an excellent stretch that saw several big lenders post strong results, this week was relatively uneventful for the banking sector -- save for notable decisions on whether and by how much to open their tills. 

Case in point: Jamie Dimon. The high-profile CEO of JPMorgan Chase (NYSE:JPM) is going to need a bigger mattress under which to stash his cash, following the decision by the bank's board of directors to nearly double his annual compensation. His total payout for 2013 has been set at a cool $20 million, which represents an awfully nice boost from the $11.5 million he earned the year before (although it's still below the 2011 level of $23 million).

Why such a spike in pay? The board cited its "sustained long-term performance; gains in market share and customer satisfaction; and the regulatory issues the Company has faced and the steps the Company has taken to resolve those issues" as the main reasons, all of which are valid. Don't spend it all in one place, Jamie.

We can assume that Citigroup (NYSE:C) CEO Michael Corbat won't get a similar hike, given that his bank was the one incumbent reporting lackluster results last week. Perhaps that's a shame, as Corbat seems to be pointing Citi in the right direction. A few days ago he bluntly articulated the bank's current strategy by telling Bloomberg Television that "people shouldn't want us to be everything to everyone." A slimmer Citi will probably be a better Citi, and its CEO is effectively keeping the chubby lender on its diet. Citi Holdings, the subsidiary that holds its problem assets, shrank to $117 billion in the fourth quarter, nearly $40 billion skinnier than it was in the same period of 2012.

Speaking of slimming down, Wells Fargo (NYSE:WFC) has made cuts in its insurance operations. It's selling 42 insurance brokerage/consulting offices to USI Insurance Services. That's more than 40% of the company total, but collectively those locations brought in less than 10% of brokerage revenue. The bank aims to diversify its services, and this is a comforting indication that it is being careful not to expand purely for expansion's sake.

Bank of America (NYSE:BAC) is going to have plenty more money to spend, should it choose to do so. An interesting tidbit dropped by CEO Brian Moynihan to Bloomberg TV was that the bank's trading operations were profitable nearly every day in the fourth quarter. That's no surprise, given that trading climbed at a 19% year-over-year clip for the quarter. Still, it was good to hear that the unit lands in the black on such a consistent basis. 

If last week was the incumbents' turn to unveil results during earnings season, the past few days have seen many of the sector's regional and local players take a turn in the spotlight. Two notable regionals reporting were US Bancorp and Fifth Third Bancorp (NASDAQ:FITB). Both slightly topped analyst earnings-per-share estimates, with the former growing its bottom line to $1.46 billion ($0.76 per share) from the year-ago quarter's $1.42 billion ($0.72). Similarly, Fifth Third's attributable net improved to $402 million ($0.43 per share) from the fourth-quarter 2012 figure of $399 million (also $0.43). Those weren't spectacular leaps but they did constitute mild upside surprises, so in the end we can notch both as wins.

Although this was a tough week on the stock market overall, for the most part the banking sector has done well lately. There's money being made, the only decision is how -- and, more fundamentally, if -- to spend it.

Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo, and owns shares of Bank of America, Citigroup, Fifth Third Bancorp, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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