1 Surprising Way Bank of America Corp Beats Wells Fargo in a $350 Billion Industry

Investors know Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) , and Capital One (NYSE: COF  ) are similar in many ways, but it turns out Bank of America tops its big competitors in an area you may not expect.

The continued growth
SNL Financial recently reported that auto loans held by banks rose by $33.4 billion over the past year to stand at nearly $360 billion. The number of delinquent loans has also steadily edged downward:

In total, 1.52% of the loans were past due, which was an improvement -- albeit a very slight one -- over the 1.55% seen in the first quarter of last year.

Yet the biggest bit of news came from Wells Fargo, which saw its loans grow by 3.5% from the end of 2013 to the end of March, which brought its total loans to $52.6 billion, supplanting Ally Financial as the nation's biggest automotive lender.

Capital One, the country's fourth largest automotive lender, also saw impressive growth, with its loans standing at $33.1 billion, a gain of 3.8%, but its total gain of $1.2 billion in loans trailed the $1.8 billion gain Wells Fargo posted.

And where was Bank of America in all of this? Well, it held on to its fifth spot, but it saw its auto loans fall by nearly 1.5%, or $400 million, to stand at $29.5 billion. So how did it beat Wells Fargo if it lost ground and had more than $20 billion fewer loans?

The surprising victory
A glance at the data of the portfolio of loans reveals a surprising reality:

Just 0.62% of the auto loans Bank of America of America held were past due, whereas Wells Fargo has nearly triple that figure, and Capital One stands more than nine times higher, with 5.6% of its loans in question.

And while 5.6% doesn't sound like a lot, a glimpse at the loans past due reveals how dramatic the difference is:

Bank

Amount Past Due

Wells Fargo

 $910

Capital One

 $1,862

Bank of America

 $183

Dollar figures in millions. Source: SNL Financial and author calculations.

The results at Bank of America are even more impressive on a total basis, relative to competitors Wells Fargo and Capital One.

What it means to investors
The first thing to note is the reality that more so than the other major banks, Capital One is dependent on automotive loans, which account for more than 17% of its total loan portfolio. It's concerning that the percentage of its past-due loans is nearly four times greater than the 1.5% for the industry as a whole.

Although the auto loans Capital One has issued earned on average 9% in the first quarter -- versus 6.5% at Wells Fargo -- investors must keep an eye on this trend, as it could be a sign of trouble in the future.

As it relates to Bank of America relative to Wells Fargo, we often hear that Bank of America is a risky bank with too many troubling trends. Although it's small, this is one example demonstrating that B of A can provide better security in its lending operations than anyone is willing to give it credit for.

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  • Report this Comment On July 07, 2014, at 6:05 AM, funfundvierzig wrote:

    Should you really trust accounting data from the Management of this Bank, where only weeks ago, a $4 billion "accounting error" tumbled out of the woodwork?

    ...funfun..

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