We're well into earnings season, and all of the "big four" U.S. banks have reported pretty good results for the third quarter. Even more important than the quarterly earnings is that all of the banks seem to be consistently improving in several key areas.
Here's a quick recap of how the big banks are doing, and where the sector could head from here.
The results so far
Bank of America (NYSE: BAC) produced a quarterly loss of $0.01 per share, which was better than the $0.09 per share loss Wall Street expected the company to report following its $5.3 billion settlement with the Justice Department.
The bank increased revenue in all business segments except real estate (which absorbed the settlement), and grew its business in several ways that should pay off in the years to come. For example, BofA issued 1.2 million new credit cards during the quarter and saw net inflows to its brokerage business.
Citigroup (C +0.24%) handily beat the Street's earnings estimates and laid out a new global strategy. Specifically, the company plans to cease operations in 11 markets, including Japan, Costa Rica, and Peru, and focus its efforts on the markets that present the best growth opportunities going forward.
Also, the company continues to wind down its portfolio of "legacy assets," and its Basel III Supplementary Leverage Ratio might be strong enough to finally persuade regulators to let the company raise its dividend.
JPMorgan Chase (JPM 0.69%) also beat estimates and posted some impressive internal growth numbers. Consumer banking deposits were up 9%, credit card sales volume was up 12%, and business banking loan originations were up 27%. In addition, commercial banking and investment banking produced nice year-over-year growth, and the company's asset management business saw its 22nd consecutive quarter of positive inflows into long-term investment accounts.
Finally, Wells Fargo (WFC 2.98%) matched expectations, but still produced a very good quarter. Total revenue was up 4% year over year, and the bank is running more efficiently. The bank's deposits grew by about $100 billion from last year, and the lending portfolio rose by $31 million. Credit card, commercial banking, and automotive loans all saw double-digit growth rates.
Shares are getting more valuable
Not only have the stock prices of the big four become more expensive, but the shares themselves are growing in value. Specifically, the book value per share of each of the four banks has been steadily rising for some time now.
Fewer bad assets
Across the board, the amount of nonperforming assets has steadily declined over time for all four banks. This is due to winding down "legacy" assets, as well as the improving U.S. economy.
Big Bank NPA | Create Infographics
What it means for investors
Despite the solid results, shares of all four banks are actually cheaper than they were before earnings, thanks mainly to the recent market sell-off.
The key takeaway from this data is that the economic recovery is proceeding and that banks are becoming more solid investments as time goes on.
The banks are growing in very healthy ways, and asset quality is getting better and better. As the economy continues to grow and the banks get rid of additional nonperforming assets, this growth should become even more impressive.
In other words, the future looks pretty good for these banks, and the fact that they still trade for historically low valuations means it is still a good time to buy their stocks.
