JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, D.C.
Evelyn Hockstein | Reuters
JPMorgan Chase said late Wednesday that the Federal Reserve overestimated a key measure of income in the giant bank’s recent stress test, and that its losses under the exam should actually be higher than what the regulator found.
The bank took the unusual step of issuing a press release minutes before midnight ET to disclose its response to the Fed’s findings.
JPMorgan said that the Fed’s projections for a measure called “other comprehensive income” — which represents revenues, expenses and losses that are excluded from net income — “appears to be too large.”
Under the Fed’s table of projected revenue, income and losses though 2026, JPMorgan was assigned $13 billion in OCI, more than any of the 31 lenders in this year’s test. It also estimated that the bank would face roughly $107 billion in loan, investment and trading losses in that scenario.
“Should the Firm’s analysis be correct, the resulting stress losses would be modestly higher than those disclosed by the Federal Reserve,” the bank said.
The error means that JPMorgan might require more time to finalize its share repurchase plan, according to a person with knowledge of the situation. Banks were expected to begin disclosing those plans on Friday after the market closes.
The news is a wrinkle to the Federal Reserve’s announcement yesterday that all 31 of the banks in the annual exercise cleared the hurdle of being able to withstand a severe hypothetical recession, while maintaining adequate capital levels and the ability to lend to consumers and corporations.
Last year, Bank of America and Citigroup made similar disclosures, saying that estimates of their own future income differed from the Fed’s results.
Banks have complained that aspects of the annual exam are opaque and that it’s difficult to understand how the Fed produces some of its results.
Jane Fraser, CEO of Citigroup, testifies during the Senate Banking, Housing, and Urban Affairs Committee hearing titled Annual Oversight of the Nations Largest Banks, in Hart Building on Thursday, September 22, 2022.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
Banking regulators on Friday disclosed that they found weaknesses in the resolution plans of four of the eight largest American lenders.
The Federal Reserve and the Federal Deposit Insurance Corp. said the so-called living wills — plans for unwinding huge institutions in the event of distress or failure — of Citigroup, JPMorgan Chase, Goldman Sachs and Bank of America filed in 2023 were inadequate.
Regulators found fault with the way each of the banks planned to unwind their massive derivatives portfolios. Derivatives are Wall Street contracts tied to stocks, bonds, currencies or interest rates.
For example, when asked to quickly test Citigroup’s ability to unwind its contracts using different inputs than those chosen by the bank, the firm came up short, according to the regulators. That part of the exercise appears to have snared all the banks that struggled with the exam.
“An assessment of the covered company’s capability to unwind its derivatives portfolio under conditions that differ from those specified in the 2023 plan revealed that the firm’s capabilities have material limitations,” regulators said of Citigroup.
The living wills are a key regulatory exercise mandated in the aftermath of the 2008 global financial crisis. Every other year, the largest US. banks must submit their plans to credibly unwind themselves in the event of catastrophe. Banks with weaknesses have to address them in the next wave of living will submissions due in 2025.
While JPMorgan, Goldman and Bank of America’s plans were each deemed to have a “shortcoming” by both regulators, Citigroup was considered by the FDIC to have a more serious “deficiency,” meaning the plan wouldn’t allow for an orderly resolution under U.S. bankruptcy code.
Since the Fed didn’t concur with the FDIC on its assessment of Citigroup, the bank did receive the less-serious “shortcoming” grade.
“We are fully committed to addressing the issues identified by our regulators,” New York-based Citigroup said in a statement.
“While we’ve made substantial progress on our transformation, we’ve acknowledged that we have had to accelerate our work in certain areas,” the bank said. “More broadly, we continue to have confidence that Citi could be resolved without an adverse systemic impact or the need for taxpayer funds.”
JPMorgan, Goldman and Bank of America declined a request to comment from CNBC.
(Bloomberg) — A renewed bout of volatility gripped US stocks in the final stretch of May, with dip buying pushing the market higher amid a rotation between technology and other industries.
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In a late-day comeback, the S&P 500 rose almost 1% Friday to notch its best month since February. The gauge had fallen almost as much earlier in the session, dragged down by megacaps. Investors betting tech giants will continue to power gains could be in for a rough ride when other sectors start to catch up, according to strategists at Bank of America Corp. — who said the outperformance of value over growth as market breadth improves could be the next “pain trade.”
“Leaders to losers… for now,” said Dan Wantrobski at Janney Montgomery Scott. “We are seeing breaks of initial support in some leadership areas. Net-net we are still expecting a bumpy ride for US equities as we enter the month of June.”
Meantime, Treasuries extended gains at the end of their best month in 2024 as the core personal consumption expenditures price gauge met estimates, while posting the smallest increase this year. What’s more, spending unexpectedly dropped. For a data-dependent Federal Reserve, the report was seen by traders as “not quite as bad”, “slightly constructive” and “marginally dovish.”
“While we don’t necessarily want to see a weakening consumer, softening retail spending should help stoke the flames for lower rates in the second half of 2024,” said Bret Kenwell at eToro. “We’re not there yet, but the inflation reports were a constructive first step.”
The S&P 500 briefly broke below 5,200, but closed above that level — as every major group but technology advanced. The Dow Jones Industrial Average of blue chips rose 1.5% — the most since November. The Nasdaq 100 finished flat after dropping almost 2% Friday. The tech-heavy measure posted its best month in 2024.
US 10-year yields fell five basis points to 4.4985%. The dollar was little changed Friday, but saw its first monthly loss since December.
Matt Maley at Miller Tabak says that usually when we get some “rotation” in the stock market, that’s viewed as a positive development. However, since the rotation between tech and everything else has gone in both directions over the past two weeks, he views it as a negative development.
“In other words, the kind of ‘rotation’ we’ve seen recently can be viewed as ‘churning,” he said. “This is not negative in-and-by-itself, but when it comes after a nice rally, it tends to indicate that the advance is becoming tired. Thus, it is frequently followed by some sort of a pullback — even if it’s only a mild one.”
Technology shares now appear overextended, suggesting a correction may be on the horizon, according to Fawad Razaqzada at City Index and Forex.com.
“After months of substantial gains and no new bullish catalysts, a correction wouldn’t be surprising,” he said.
Hedge funds’ exposure to US technology behemoths hit a record high following Nvidia Corp.’s estimate-thumping earnings report this month, according to a recent report from Goldman Sachs Group Inc.’s prime brokerage.
The so-called Magnificent Seven companies — Nvidia, Apple Inc., Amazon.com Inc., Meta Platforms Inc., Alphabet Inc., Tesla Inc. and Microsoft Corp. — account for about 20.7% of hedge funds’ total net exposure to US single stocks, the report showed.
A strong start of the year for US stocks suggests above average performance in the second half of 2024, according to data analyzed by Scott Rubner at Goldman Sachs Group Inc.
Going back to 1950, there have been 21 episodes when the S&P 500 was up more than 10% by the end of May.
Out of these, the only two instances where the S&P 500 ended the rest of the year down were 1987 when it fell 13% and 1986 when it slipped 0.1%, meaning that the index was up about 90% of the time.
Amid the several twists and turns in stocks, traders also waded through the latest inflation report.
The so-called core PCE, which strips out the volatile food and energy components, increased 0.2% from the prior month. Inflation-adjusted consumer spending unexpectedly fell 0.1%, dragged down by a decrease in outlays for goods and softer services spending. Wage growth, the primary fuel for demand, moderated.
“Markets see inflation on a slow, but steady path lower,” said Quincy Krosby at LPL Financial. “The question is still how much more the Fed needs in terms of slower inflation before initiating an easing cycle.”
Overnight index swap contracts tied to upcoming Fed policy meetings continue to fully price in a quarter-point rate cut in December, with the odds of a move as soon as September edging up to around 50%. For all of 2024, the contracts imply a total of 35 basis points of rate reductions, up slightly from the close on Thursday.
While the PCE data will likely be welcomed by the Fed, the core gauge has still risen at an annualized rate of 3.5% in the last three months, according to David Donabedian at CIBC Private Wealth.
“So, it’s way too early for any sort of victory lap for the Fed,” he noted.
In fact, inflation may not return to the US central bank’s 2% target until mid-2027, according to research from Fed Bank of Cleveland.
That’s because the inflationary impacts of pandemic-era shocks have largely resolved and the remaining forces that are keeping inflation elevated are “very persistent,” Cleveland Fed economist Randal Verbrugge wrote in a report Thursday.
Another aspect is that consumer spending in the first month of the new quarter slowed as real disposable incomes fell, remarked Jeff Roach at LPL Financial.
“Businesses need to prepare for an environment where consumers are not splurging like they were last year,” he noted.
“We are in a be-careful-what-you-wish-for moment because if slowing consumer spending leads to lower inflation and the Fed is able to cut slowly as a result then that will be good for markets,” said Chris Zaccarelli at Independent Advisor Alliance. “However, if consumer spending – and the economy – slows too quickly, then corporate profits and stock prices will go down much more quickly than the Fed will be able to cut rates, so we would be careful at this point.”
Corporate Highlights:
Dell Technologies Inc. fell the most since it returned to the public market in 2018 after its first revenue increase since 2022 wasn’t enough to impress investors with high expectations for the company’s AI server business.
Carl Icahn has amassed a sizable position in Caesars Entertainment Inc., people familiar with the matter said, but has no plans to repeat a previous activist campaign at the hotel and casino group.
Hedge-fund manager Bill Ackman is selling a stake in Pershing Square as a prelude to a planned initial public offering of his investment firm, according to a person familiar with the matter.
Gap Inc. reported better-than-expected results and raised its outlook for the full year, showing the apparel retailer’s bid to rebuild the business is moving forward.
Penn Entertainment Inc. soared after an activist investor called for the sale of the casino company, saying a failed deal and growing pattern of guidance misses have damaged management’s credibility.
Moderna Inc. gained US approval for its RSV vaccine in older adults, giving the biotech company a second product as it seeks to move beyond its reliance on the fading market for Covid-19 shots.
Hess Corp. shareholders approved the company’s proposal to be acquired by Chevron Corp. for $53 billion by a razor-thin majority of 51% of shares outstanding.
Bank of America Chairman and CEO Brian Thomas Moynihan speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, U.S., December 6, 2023.
Evelyn Hockstein | Reuters
U.S. consumers and businesses alike have turned cautious about spending this year because of elevated inflation and interest rates, according to Bank of America CEO Brian Moynihan.
Whether it’s households or small- to medium-sized businesses, Bank of America clients are slowing down the rate of purchases made for everything from hard goods to software, Moynihan said Thursday at a financial conference held in New York.
Consumer spending via card payments, checks and ATM withdrawals has grown about 3.5% this year to roughly $4 trillion, Moynihan said. That’s a sharp slowdown from the nearly 10% growth rate seen in May 2023, he said.
“Both of our customer bases that have a lot to do with how the American economy runs are saying, ‘You know what? I’m being careful, slowing things down,’” Moynihan said, referring to consumers and businesses.
The slowdown began last summer and is consistent with the “very low growth” environment of the period from 2016 through 2018, he said.
Nearly a year after the last Federal Reserve rate increase, consumers and businesses are wrestling with inflation and borrowing costs that remain higher than they are accustomed to. The Fed began efforts to tame inflation by hiking its benchmark rate starting in March 2022, hoping it could slow the economy without tipping it into recession.
Many economists believe the Fed is on track to pull off that feat, which has helped the stock market reach new highs this year. But consumers are still grappling with higher prices for goods and services, and that has impacted U.S. companies from McDonald’s to discount retailers as Americans adjust their behavior.
Food shoppers are hitting up more store locations in search of deals, according to Moynihan. “They’re going to three grocery stores instead of two, is one of the stats we see,” he said.
The now-tepid growth in overall spending is being propped up by travel and entertainment, while “other things have moderated, except for insurance payments,” Moynihan said. Growth in rent payments has slowed, he noted.
“We’ve got to keep the consumer in the game in the U.S. economy, because [they’re] such a big part of it,” Moynihan said. “They’re getting a little more tenuous, and that is due to everything going on around them.”
The same is true for small- and medium-sized businesses, the Bank of America CEO said. His company is the second-largest U.S. bank by assets, after JPMorgan Chase. Moynihan and other bank CEOs have a bird’s-eye view of the economy, given their coast-to-coast coverage of households and companies.
Business owners are saying, “‘I still feel good about my overall business, but I’m not hiring as much. I’m not buying equipment as fast. I’m not making software purchases as fast,’” Moynihan said.
The bank’s economists believe that inflation will take until the end of next year to get under control and that the Fed will begin cutting interest rates later this year, Moynihan said. The U.S. economy will probably grow at around a 2% level, avoiding recession, he added.
Wells Fargo is breaking out of its lending roots. The bank has quietly gone on a hiring spree to grab a bigger slice of the profitable investment banking business long dominated by its Wall Street rivals. Since the start of 2023, a CNBC analysis found that Wells Fargo made at least 17 senior-level hires in its corporate and investment banking (CIB) division. Leaning on the expertise of its rivals, many of the newly employed executives previously worked at the likes of JPMorgan Chase and other big banks. Expanding investment banking “improves our outlook” on Wells Fargo stock, according to Jeff Marks, director of portfolio analysis for the CNBC Investing Club. “Adding more fee-related revenues to the overall picture makes the bank’s profits less hostage to the bond market yield curve and could improve the overall return profile of the bank.” He added, “Wells Fargo could fetch a higher multiple in the market as a result.” It’s no wonder CEO Charlie Scharf wants a bigger slice of businesses like investment banking, which garner huge revenue from fees. Services like underwriting for initial public offerings (IPO) and facilitating mergers and acquisitions (M & A) allow banks to take home a percentage of these deals and advisory fees. Fees are a more durable and less volatile revenue stream than what Wells Fargo has historically focused on. This is important because, as Scharf said in the bank’s 2023 annual report , the CIB division has positioned Wells Fargo to “increase our fee-based revenues” and “increase our returns overall.” At the top of the recent hire list, however, is Doug Braunstein, a JPMorgan veteran who was brought in as vice chairman in February to help steer Wells Fargo’s corporate finance and advisory businesses. During nearly 20 years at JPMorgan, Braunstein held many roles including chief financial officer, head of investment banking in the Americas, and head of global mergers and acquisitions. Fernando Rivas was named earlier this month co-CEO of corporate and investment banking at Wells Fargo. Formerly head of North American Investment Banking at JPMorgan, Rivas will lead CIB together with Jonathan Weiss, who had been the sole CEO of the division since February 2020. Weiss, also a JPMorgan alum, has been at Wells Fargo since 2005. Rivas had been at JPMorgan for three decades. In addition to those high-profile hires, CNBC found that Wells Fargo also poached top talent from other financial behemoths such as Barclays , Deutsche Bank , Piper Sandler, and now-defunct Credit Suisse — all within the past year. A Wells Fargo spokesperson declined to comment on the total number of CIB-related hires across all levels in the division. However, Wells Fargo’s Scharf said in the press release announcing Rivas’ hire, “We have added over 50 senior bankers and traders since 2020 and have seen the positive impact with increased revenue and market share.” Break from tradition Management has long relied on interest-based revenue streams like net interest income (NII) from its retail and business customers. NII is the difference between what a firm makes on loans versus what it pays for customer deposits. Wells Fargo and other banks have benefited in recent years as the Federal Reserve began hiking interest rates in March 2022. That’s because the cost of borrowing goes up much more than what customers earn on deposits. However, as rates have stayed higher for longer, customers began to withdraw some of their deposits for higher-yielding offerings like money market funds. Wells Fargo said NII decreased 8% during the first quarter, citing interest rate dynamics. Full-year guidance for NII is also expected to decline in the 7% to 9% range. That’s the double-edged sword of rates, which are now expected to be cut by the Fed later this year, and why Wells Fargo was glad to see its CIB-related investments pay off in the first quarter. The division saw a 1.6% increase in revenue to $4.98 billion. During the April 12 post-earnings conference call, Scharf said the bank is “beginning to see early signs of share and fee growth which will be important as we diversify our revenues and reduce net interest income as a percentage of revenue.” From 2019 to the end of 2023, Wells Fargo’s overall investment banking share moved up two ranks in the U.S. market to No. 6, management said in an annual report , citing Dealogic figures. More recent data indicates that Wells Fargo’s investment banking revenue share globally has jumped to No. 7 from No. 12 year-over-year, as of Tuesday. In the investing banking subset of M & A, Wells Fargo has been garnering more fees. The bank has been tapped for a series of high-profile deals as well, including Kroger ‘s attempted nearly $25 billion acquisition of Albertson’s in October 2022. The transaction is in limbo after the Federal Trade Commission filed a lawsuit to block the merger in February . In IPOs, Wells Fargo was among the lead book-running managers of recent IPOs: cruise line Viking and data management firm Rubrik . Wells Fargo shares, which began their upward trajectory back in November, gained more than 50% in the past 12 months — and about half that gain in 2024 alone. That’s roughly double the S & P 500 ‘s performance on both measures. The stock saw its highest close last week of $62.55 since mid-January 2018. Shares have pulled back a bit since then but remain only about 7.5% away from its all-time high close of $65.93 at the end of January 2018. In recognition of that strength, the Club trimmed its Wells Fargo position in late April and booked a healthy profit on the trade. While still bullish, we wanted to reduce the stock’s overall weighting in a show of portfolio discipline. It was near the 5% threshold that we don’t like exceeding in order to run a diversified portfolio. The Club has a 2 rating on the stock and a $62 price target . WFC mountain 2018-01-26 Wells Fargo since record high close on Jan. 26, 2018 Moving forward Wells Fargo’s CIB expansion bodes well once the firm’s Fed-imposed $1.95 trillion asset cap is gone. Although the timing is uncertain, Wells Fargo secured a key win with regulators in February after the Office of the Comptroller of the Currency terminated a penalty tied to the bank’s 2016 fake accounts scandal. That so-called consent order was believed to be a major factor in the Fed’s decision to cap Wells Fargo’s asset levels in 2017. Those regulatory burdens for past misdeeds at the bank predated Scharf’s tenure who has been clearing them since becoming CEO in 2019. Piper Sandler analyst Scott Siefers has said that Wells Fargo will be able to compete more effectively against other large Wall Street firms once the growth cap is removed. “Wells Fargo on a relative basis is very undersized in businesses such as investment banking,” Siefers told CNBC in March . “So, one part of the investment banking business is being able to commit capital. In other words, put some risk on your balance sheet. But thanks to the asset cap, Wells has not been able to build out its investment bank to the same degree, as have some of its other peers.” (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A woman walks past Wells Fargo bank in New York City, U.S., March 17, 2020.
Jeenah Moon | Reuters
Wells Fargo is breaking out of its lending roots. The bank has quietly gone on a hiring spree to grab a bigger slice of the profitable investment banking business long dominated by its Wall Street rivals.
Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of Wall Street Firms, in the Hart Building on Dec. 6, 2023.
That was the message the bank’s longtime CEO gave analysts Monday during JPMorgan’s annual investor meeting. When pressed about the timing of a potential boost to the bank’s share repurchase program, Dimon did not mince words.
“I want to make it really clear, OK? We’re not going to buy back a lot of stock at these prices,” Dimon said.
JPMorgan, the biggest U.S. bank by assets, has seen its shares surge 40% over the past year, reaching a 52-week high of $205.88 on Monday before Dimon’s comments dinged the stock. That 12-month performance beats other banks, especially smaller firms recovering from the 2023 regional banking crisis.
It also makes the stock relatively pricey as measured by price to tangible book value, a commonly used industry metric. JPMorgan shares traded recently for around 2.4 times book value.
“Buying back stock of a financial company greatly in excess of two times tangible book is a mistake,” Dimon said. “We aren’t going to do it.”
Dimon’s comments about his company’s stock, as well as an acknowledgement that he may be nearing retirement, sent the bank’s shares down 4.5% Monday.
To be clear, JPMorgan has been repurchasing its stock under a previously authorized buyback plan. The bank resumed buybacks early last year after taking a pause to build up capital under new expected guidelines.
Dimon’s guidance simply means it is unlikely the program will be boosted anytime soon. JPMorgan is likely to purchase shares at a $2 billion to $2.5 billion quarterly clip, Portales Partners analyst Charles Peabody wrote in a March research note.
The JPMorgan CEO has often resisted pressure from investors and analysts that he deemed short-sighted. When interest rates were low, Dimon kept relatively high levels of cash, rather than plowing funds into low-yielding, long-term bonds. That helped JPMorgan outperform other lenders, including Bank of America, when interest rates jumped higher.
Dimon’s desire to hoard cash is not just because of impending capital rules. On multiple occasions Monday, he said he was “cautiously pessimistic” about economic risks, including those tied to inflation, interest rates, geopolitics and the reversal of the Federal Reserve’s bond-buying programs.
Markets are currently underappreciating those risks, Dimon said. For instance, prices of high-quality corporate bonds do not adequately reflect the potential for financial stress, Dimon said.
“The investment grade credit spread, which is almost the lowest it’s ever been, will be dead wrong,” Dimon said. “It’s just a matter of time.”
Since 2022, Dimon has warned of an economic “hurricane” set off by geopolitical risks and quantitative tightening. While the continued strength of the economy has surprised many on Wall Street, including Dimon, his concerns have informed his decision-making process ever since.
“We’ve been very, very consistent — if the stock goes up, we’ll buy less,” he said Monday. “When it comes down, we’ll buy more.”
The identity of the stock — or stocks — that Berkshire has been snapping up could be revealed Saturday at the company’s annual shareholder meeting in Omaha, Nebraska.
That’s because unless Berkshire has been granted confidential treatment on the investment for a third quarter in a row, the stake will be disclosed in filings later this month. So the 93-year-old Berkshire CEO may decide to explain his rationale to the thousands of investors flocking to the gathering.
The bet, shrouded in mystery, has captivated Berkshire investors since it first appeared in disclosures late last year. At a time when Buffett has been a net seller of stocks and lamented a dearth of opportunities capable of “truly moving the needle at Berkshire,” he has apparently found something he likes — and in the financial realm no less.
That’s an area he has dialed back on in recent years over concerns about rising loan defaults. High interest rates have taken a toll on some financial players like regional U.S. banks, while making the yield on Berkshire’s cash pile in instruments like T-bills suddenly attractive.
“When you are the GOAT of investing, people are interested in what you think is good,” said Glenview Trust Co. Chief Investment Officer Bill Stone, using an acronym for greatest of all time. “What makes it even more exciting is that banks are in his circle of competence.”
Under Buffett, Berkshire has trounced the S&P 500 over nearly six decades with a 19.8% compounded annual gain, compared with the 10.2% yearly rise of the index.
Coverage note: The annual meeting will be exclusively broadcast on CNBC and livestreamed on CNBC.com. Our special coverage will begin Saturday at 9:30 a.m. ET.
Berkshire requested anonymity for the trades because if the stock was known before the conglomerate finished building its position, others would plow into the stock as well, driving up the price, according to David Kass, a finance professor at the University of Maryland.
Buffett is said to control roughly 90% of Berkshire’s massive stock portfolio, leaving his deputies Todd Combs and Ted Weschler the rest, Kass said.
While investment disclosures give no clue as to what the stock could be, Stone, Kass and other Buffett watchers believe it is a multibillion-dollar wager on a financial name.
That’s because the cost basis of banks, insurers and finance stocks owned by the company jumped by $3.59 billion in the second half of last year, the only category to increase, according to separate Berkshire filings.
At the same time, Berkshire exited financial names by dumping insurers Markel and Globe Life, leading investors to estimate that the wager could be as large as $4 billion or $5 billion through the end of 2023. It’s unknown whether that bet was on one company or spread over multiple firms in an industry.
If it were a classic Buffett bet — a big stake in a single company — that stock would have to be a large one, with perhaps a $100 billion market capitalization. Holdings of at least 5% in publicly traded American companies trigger disclosure requirements.
Investors have been speculating for months about what the stock could be. Finance covers all manner of companies, from retail lenders to Wall Street brokers, payments companies and various sectors of insurance.
“Schwab was beaten down during the regional banking crisis last year, they had an issue where retail investors were trading out of cash into higher-yielding investments,” Shanahan said. “Nobody wanted to own that name last year, so Buffett could’ve bought as much as he wanted.”
Other names that have been circulated — JPMorgan Chase or BlackRock, for example, are possible, but may make less sense given valuations or business mix. Truist and other higher-quality regional banks might also fit Buffett’s parameters, as well as insurer AIG, Shanahan said, though their market capitalizations are smaller.
Berkshire has owned financial names for decades, and Buffett has stepped in to inject capital — and confidence — into the industry on multiple occasions.
Buffett served as CEO of a scandal-stricken Salomon Brothers in the early 1990s to help turn the company around. He pumped $5 billion into Goldman Sachs in 2008 and another $5 billion into Bank of America in 2011, ultimately becoming the latter’s largest shareholder.
But after loading up on lenders in 2018, from universal banks like JPMorgan to regional lenders like PNC Financial and U.S. Bank, he deeply pared his exposure to the sector in 2020 on concerns that the coronavirus pandemic would punish the industry.
Since then, he and his deputies have mostly avoided adding to his finance stakes, besides modest positions in Citigroup and Capital One.
Last May, Buffett told shareholders to expect more turbulence in banking. He said Berkshire could deploy more capital in the industry, if needed.
“The situation in banking is very similar to what it’s always been in banking, which is that fear is contagious,” Buffett said. “Historically, sometimes the fear was justified, sometimes it wasn’t.”
Wherever he placed his bet, the move will be seen as a boost to the company, perhaps even the sector, given Buffett’s track record of identifying value.
It’s unclear how long regulators will allow Berkshire to shield its moves.
“I’m hopeful he’ll reveal the name and talk about the strategy behind it,” Shanahan said. “The SEC’s patience can wear out, at some point it’ll look like Berkshire’s getting favorable treatment.”
There are still some attractive yields to be found on certificates of deposits, including from some of the biggest banks in the U.S. For instance, JPMorgan right now is paying out an annual percentage yield of 5.4% on a one-year CD, via Fidelity Investments. Goldman Sachs , Morgan Stanley and Bank of America all have one-year offerings with yields of at least 5%, according to Fidelity’s website . They are what is known as brokered CDs, which are purchased through a brokerage firm like Fidelity, Schwab or Vanguard . While buyers can get bank CDs directly from the institution, they get a wide range of issuer options to choose from when buying through a brokerage firm. That means there may potentially be an opportunity to snag some additional yield. “From our experience, the brokered CD market is more competitive,” said Richard Carter, vice president of fixed income products and services at Fidelity. The firm has some 180 different brokered CDs available at different maturities, he said. Like traditional CDs, brokered CDs are offered in different maturities. They are also insured by the Federal Deposit Insurance Corp. up to $250,000 per depositor , per bank and per ownership category. Like their smaller counterparts, big banks may also offer CDs to raise deposits pretty quickly and may target particular parts of the yield curve, Carter said. However, buyers should be aware of some key differences between brokered CDs and their traditional counterparts. For one, brokered CDs may be callable — meaning the issuing intuition can call the CD before its maturity date. For instance, JPMorgan’s one-year CD, with its 5.4% yield, can be called as early as Oct. 30, according to Fidelity’s website. While you’ll get your initial deposit back, there’s a chance you could earn that interest for a shorter period of time than expected. In the one-year category, Morgan Stanley Private Bank and Bank of America are not callable. Goldman Sachs has two new issue CDs offered — one with a 5.15% rate that is callable as early as July 30 and one with a 5% rate that is not callable. “Where it causes a real problem is on a longer-term CD,” explained Greg McBride, chief financial analyst at Bankrate.com. “You think you locked into a five-year CD and 12 or 18 months later it gets called. You get your money back and have to reinvest at a time when interest rates are lower.” It’s also important to understand your time frame before you buy a CD, whether from a bank or a brokerage firm. With bank CDs, you’ll pay a penalty if you want your money back before maturity. That penalty is stated at the outset when you buy the CD. With a brokered CD, you’ll have to sell it on the secondary market — and you may lose some of your principal. “What you get depends on what another investor is willing to pay for it,” McBride said. “If rates move against you, you can lose big, especially on a longer-term CD.” In addition, you may have to pay a transaction fee. In Fidelity’s case, it is $1 per $1,000 CD to sell your CD on the secondary market. A brokered CD also doesn’t necessarily mean a higher yield, McBride said. He suggests looking at top-yielding bank CDs, which he said tend to be pretty comparable. Those choosing brokered CDs may find it convenient if they already have investments at a specific brokerage firm, so all their accounts are in one place. In addition, for those who who want to invest more than the FDIC limit can buy CDs from multiple issuers. You can also easily build a CD ladder, which staggers maturities, said Carter. “In this world of uncertainty, another way of hedging risk is a ladder,” he said. “Some of the money is out into the future — if rates were to fall you have that locked in,” he added. “If rates were to rise, you have the shorter maturities on the ladder, which gives you the chance — if you want — to reinvest that principal.” Depending on your time frame, you may consider a one-year ladder with CD maturities three months apart, a two-year ladder with CD maturities six months apart, or a five-year ladder, with maturities one year apart, he said.
Morgan Stanley on Tuesday posted results that topped analysts’ estimates for profit and revenue as wealth management, trading and investment banking exceeded expectations.
Here’s what the company reported:
Earnings: $2.02 a share, vs. $1.66 expected, according to LSEG
Revenue: $15.14 billion, vs. expected $14.41 billion
The bank said first-quarter profit rose 14% from a year earlier to $3.41 billion, or $2.02 a share, helped by rising results at each of its three main divisions. Revenue climbed 4% to $15.14 billion.
Shares of the bank jumped about 2.5%.
Wealth management revenue rose 4.9% to $6.88 billion, topping the StreetAccount estimate by $230 million, as rising markets helped boost fee revenue and offset a decline in interest income.
Equities trading revenue increased 4.1% to $2.84 billion, $160 million more than expected, fueled by derivatives volumes. Fixed income trading revenue slipped 3.5% to $2.49 billion, but that still topped expectations by $120 million.
Investment banking revenue jumped 16% to $1.45 billion, edging out the $1.40 billion estimate, as increases in debt and equity issuance offset lower fees from acquisitions.
The firm’s smallest division, investment management, was the only major business to underperform expectations. While revenue climbed 6.8% to $1.38 billion, it was below the $1.43 billion StreetAccount estimate.
CEO Ted Pick’s tenure had kicked off on a rocky note, as high interest rates have incentivized the bank’s wealth management customers to move cash into higher-yielding securities. The bank’s shares have declined nearly 7% this year before Tuesday.
But like rivals including Goldman Sachs and JPMorgan Chase, Morgan Stanley was helped by strong trading and investment banking results in the quarter.
Last week, JPMorgan, Wells Fargo and Citigroup each topped expectations for revenue and profit, a streak continued by Goldman on Monday and Bank of America on Tuesday.
Analysts questioned Pick about reports that multiple U.S. regulators are investigating Morgan Stanley for potential shortfalls in how it screens clients for its wealth management division.
“We’ve been focused on our client on-boarding and monitoring processes for a good while,” Pick said Tuesday. “We have been spending time, effort and money for multiple years, and it is ongoing. We’ve been on it and the costs associated with this are largely in the expense run rate.”
Bank of America on Tuesday reported first-quarter earnings that topped analysts’ estimates for profit and revenue on better-than-expected interest income and investment banking.
Here’s what the company reported:
Earnings: 83 cents a share adjusted, vs. 76 cents expected, according to LSEG
Revenue: $25.98 billion, vs. $25.46 billion expected
The bank said profit fell 18% to $6.67 billion, or 76 cents a share; excluding a $700 million FDIC assessment, profit was 83 cents a share. Revenue slipped 1.6% to $25.98 billion as net interest income declined from a year earlier.
Net interest income, or the difference between what the company earns from loans and investments and what it pays customers for their deposits, was $14.19 billion, topping the $13.93 billion StreetAccount estimate.
The bank’s interest income was a “slight positive surprise,” though it’s unclear if this means the metric will improve earlier than expected, Wells Fargo analyst Mike Mayo said Tuesday in a research note.
The bank’s total deposits of $1.95 trillion climbed roughly 1% from the fourth quarter, while loans were essentially unchanged at $1.05 trillion.
“I was unimpressed with deposits and loans being flat,” David Wagner, portfolio manager at Aptus Capital Advisors, said in an email. “The only areas that BAC did well was where other banks have shown strength.”
Bank of America CFO Alastair Borthwick told analysts Tuesday in a conference call that NII will likely dip in the second quarter to about $14 billion on drops in wealth management and markets interest income. Though it could grow in the second half of the year, he said.
NII has been declining in recent quarters as funding costs have climbed along with the rise in interest rates.
Shares of the bank fell more than 3%.
Bank of America’s share decline Tuesday has more to do with the rise in the 10 year Treasury yield than first quarter results, according to KBW analyst David Konrad. Shares of many banks have been yoked to yields in the past year, as rising yields means some bond and loan holdings decline in value.
Investment banking revenue jumped 35% to $1.57 billion, exceeding the $1.36 billion estimate and following a similar rise at rivals including Goldman Sachs and JPMorgan Chase.
It’s also considerably higher than the guidance given by Borthwick, who told analysts last month to expect investment banking revenue to rise by 10% to 15% from a year earlier.
The bank’s trading operations also edged out expectations. Fixed income revenue fell 3.6% to $3.31 billion, slightly beating the $3.24 billion estimate, and equities revenue rose 15% to $1.87 billion, compared with the $1.84 billion estimate.
Wells Fargo reported better-than-expected earnings results on Friday, but some weakness under the hood is putting a lid on the bank’s stock. Stay the course: Shares should move higher as management continues to shake off regulatory punishments for past misdeeds. Total revenue for the three months ended Mar. 31 ticked up less than 1% over last year, to $20.86 billion, exceeding analysts’ expectations of $20.2 billion, according to LSEG. Adjusted earnings of $1.26 per share was nicely above Wall Street’s consensus estimate of $1.11 per share, LSEG data showed. Note: The $1.26 EPS excludes a 6-cent per share ($284 million hit to net income) negative impact from a Federal Deposit Insurance Corporation (FDIC) special assessment for the rescue of regional banks after last year’s failure of Silicon Valley Bank. This special assessment charge was a 40-cent per share headwind in the fourth quarter of 2023. Wells Fargo Why we own it : We bought Wells Fargo as a turnaround story under CEO Charlie Scharf. He’s been making progress cleaning up the bank’s act and fixing its previously bloated cost structure after a series of misdeeds before his tenure. Scharf has also been working to get the Fed’s $1.95 trillion asset cap lifted and to boost Wells Fargo’s fee-generating revenue streams. Competitors : Bank of America and Citigroup Weight in Club portfolio : 4.76% Most recent buy : Feb. 24, 2022 Initiated : Jan. 8, 2021 Bottom line The results skew positive, even with some key line-item misses. For one, the bank’s overall efficiency ratio was a tad higher than expected. (The ratio is non-interest expense divided by total revenue, the lower the ratio the better the efficiency). However, we expect to see that number come down over time as management continues to address regulatory concerns and makes progress toward the ultimate removal of the asset cap. In addition, the bank’s net interest margin came up short, and therefore net interest income. We aren’t too surprised given that interest rates are a double-edged sword for banks. Higher rates mean higher revenue generation on loans; they also mean higher funding costs (interest payments on deposits) as customers withdraw deposits in search of higher yields elsewhere. None of this is news: We’ve seen this dynamic play out for several quarters already. That said, in general, higher rates are a net positive for Wells Fargo’s bottom line. Many positives outweighed the negatives. For example, non-interest expenses increased this quarter to a level above Street estimates, but non-interest income advanced at a faster rate and ahead of expectations. Likewise, the bank’s tangible book value per share came in a bit soft but was more than offset by better-than-expected return on tangible common equity performance — a key metric that investors take into heavy consideration when determining the appropriate valuation multiple to place on a bank’s stock. Also a plus: The bank’s provisions for credit losses were much lower than expected. That’s especially good considering the concerns many had regarding Wells Fargo’s commercial real estate exposure and increased credit usage by consumers as their pandemic savings diminished. On the post-earnings call with investors, CEO Charles Scharf said: “We continue to see strength in the U.S. economy, spending patterns of consumers using our debit and credit cards remain generally consistent and continued to grow year over year. Consumer credit is performing as we expect, wholesale credit continues to perform well, and our views around commercial real estate have not significantly changed since last quarter.” On the capital return front, we got a big step up in returns to shareholders, with the bank repurchasing $6.1 billion worth of stock (112.5 million shares) in the first quarter. That’s a major increase from the $2.4 billion (51.7 million shares) repurchased in the fourth quarter. Moreover, despite the CET 1 ratio — which compares a bank’s capital against its risk-weighted assets — coming in a tick below expectations, it’s nothing to be concerned about. There’s plenty of excess capital left for management to return to shareholders. Wells Fargo is on the right path to increasing efficiencies, driving ROTCE (return on average tangible common shareholders’ equity) toward management’s goal of 15%, and having its regulator-imposed asset cap removed. As a result, we are increasing our price target on WFC shares to $62 from $60, but maintaining our 2 rating as we look for a better entry point. WFC YTD mountain Wells Fargo YTD Guidance Wells Fargo’s management team maintained its outlook for full-year 2024 net interest income: 7% to 9% lower than the $52.4 billion level achieved in 2023. This implies a range of $47.7 billion to $48.7 billion, a miss versus the $48.8 billion consensus estimate coming into the print. We don’t like a miss on guidance. However, bank interest income estimates depend on interest rates, a factor Wells can’t control. Management said on Tuesday that it’s still early in the year and ultimately “the amount of net interest income we earn will depend on a variety of factors, many of which are uncertain, including deposit balances mix and pricing, the absolute level of interest rates and the shape of the yield curve and loan demand.” Keep in mind that management has been very focused on decreasing the revenue contribution from interest-based revenues, focusing instead on growing the non-interest, fee-based revenues, a move we strongly support as it serves to reduce volatility and reliance on interest rate dynamics that management can’t control. “We’re beginning to see early signs of share and fee growth which will be important as we diversify our revenues and reduce net interest income as a percentage of revenue,” the company said. Full-year non-interest expense guidance was also left unchanged at roughly $52.6 billion. That’s a bit below the $52.95 billion expected, which is a positive. First-quarter results Consumer banking and lending revenue fell nearly 3% year over year to $9.09 billion. Consumer and small business banking (CSBB) revenue fell 4% as the tailwind of higher debit card fees was more than offset by lower deposit balances. Within consumer lending, home lending was flat versus last year and up 3% sequentially. Credit card revenue increased 6% annually and 3% on a sequential basis. Auto loan revenue was down 23% year over year and down 10% sequentially. Personal lending increased 7% from last year but declined 1% sequentially. Commercial banking revenue fell 5% to $3.15 billion. Middle-market banking revenue declined 4% year over year, while asset-based lending and leasing revenue was down 7% annually. Non-interest expenses fell 4% due to a reduction in personnel expenses and efficiency gains. Corporate and investment banking revenue increased nearly 2% to $4.98 billion. Total banking revenue increased 5% year over year, as a 3% decline in lending and a 13% decline in treasury management and payments revenues were more than offset by a 69% increase in investment banking revenues. Commercial real estate revenue fell 7% as the headwind of lower loan balances was only partially offset by increased commercial mortgage-backed securities volumes. Markets revenue was up 2% on the back of a 6% increase in fixed income, currencies, and commodities (FICC) revenue, and a 3% increase in equities revenues. Non-interest expenses increased 5% annually, due to higher operating costs, which were only partially offset by efficiency gains. Wealth and investment management revenue advanced about 2% to $3.74 billion. Net interest income fell 17% year over year as deposits declined due to customers reallocating cash into higher-yielding securities. Non-interest income increased 9% thanks to higher asset-based fees driven by an increase in market valuations. Non-interest expenses were up 6% annually as higher revenue-related compensation was only partially offset by efficiency initiatives. (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Wells Fargo customers use the ATM at a bank branch on August 08, 2023 in San Bruno, California.
Justin Sullivan | Getty Images
Wells Fargo reported better-than-expected earnings results on Friday, but some weakness under the hood is putting a lid on the bank’s stock. Stay the course: Shares should move higher as management continues to shake off regulatory punishments for past misdeeds.
Jamie Dimon, President and CEO of JPMorgan Chase, speaking on CNBC’s “Squawk Box” at the World Economic Forum Annual Meeting in Davos, Switzerland, on Jan. 17, 2024.
Adam Galici | CNBC
JPMorgan Chase is scheduled to report first-quarter earnings before the opening bell Friday.
Here’s what Wall Street expects:
Earnings: $4.11 a share, according to LSEG
Revenue: $41.85 billion, according to LSEG
Net interest income: $23.18 billion, according to StreetAccount
Trading Revenue: Fixed income of $5.19 billion and equities of $2.57 billion, according to StreetAccount
JPMorgan will be watched closely for clues on how banks fared at the start of the year.
While the biggest U.S. bank by assets has navigated the rate environment well since the Federal Reserve began raising rates two years ago, smaller peers have seen their profits squeezed.
The industry has been forced to pay up for deposits as customers shift cash into higher-yielding instruments, squeezing margins. Concern is also mounting over rising losses from commercial loans, especially on office buildings and multifamily dwellings, and higher defaults on credit cards.
Still, large banks are expected to outperform smaller ones this quarter, and expectations for JPMorgan are high. Analysts believe the bank can boost guidance for 2024 net interest income as the Federal Reserve is forced to maintain interest rate levels amid stubborn inflation data.
Analysts will also want to hear what CEO Jamie Dimon has to say about the economy and the industry’s efforts to push back against efforts to cap credit card and overdraft fees.
Wall Street may provide some help this quarter, with investment banking fees for the industry up 11% from a year earlier, according to Dealogic.
Shares of JPMorgan have jumped 15% this year, outperforming the 3.9% gain of the KBW Bank Index.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 7, 2024.
Brendan Mcdermid | Reuters
The benefits of scale will never be more obvious than when banks begin reporting quarterly results on Friday.
Ever since the chaos of last year’s regional banking crisis that consumed three institutions, larger banks have mostly fared better than smaller ones. That trend is set to continue, especially as expectations for the magnitude of Federal Reserve interest rates cuts have fallen sharply since the start of the year.
The evolving picture on interest rates — dubbed “higher for longer” as expectations for rate cuts this year shift from six reductions to perhaps three – will boost revenue for big banks while squeezing many smaller ones, adding to concerns for the group, according to analysts and investors.
JPMorgan Chase, the nation’s largest lender, kicks off earnings for the industry on Friday, followed by Bank of America and Goldman Sachs next week. On Monday, M&T Bank posts results, one of the first regional lenders to report this period.
The focus for all of them will be how the shifting view on interest rates will impact funding costs and holdings of commercial real estate loans.
“There’s a handful of banks that have done a very good job managing the rate cycle, and there’s been a lot of banks that have mismanaged it,” said Christopher McGratty, head of U.S. bank research at KBW.
Take, for instance, Valley Bank, a regional lender based in Wayne, New Jersey. Guidance the bank gave in January included expectations for seven rate cuts this year, which would’ve allowed it to pay lower rates to depositors.
Instead, the bank might be forced to slash its outlook for net interest income as cuts don’t materialize, according to Morgan Stanley analyst Manan Gosalia, who has the equivalent of a sell rating on the firm.
Net interest income is the money generated by a bank’s loans and securities, minus what it pays for deposits.
Smaller banks have been forced to pay up for deposits more so than larger ones, which are perceived to be safer, in the aftermath of the Silicon Valley Bank failure last year. Rate cuts would’ve provided some relief for smaller banks, while also helping commercial real estate borrowers and their lenders.
Valley Bank faces “more deposit pricing pressure than peers if rates stay higher for longer” and has more commercial real estate exposure than other regionals, Gosalia said in an April 4 note.
Meanwhile, for large banks like JPMorgan, higher rates generally mean they can exploit their funding advantages for longer. They enjoy the benefits of reaping higher interest for things like credit card loans and investments made during a time of elevated rates, while generally paying low rates for deposits.
JPMorgan could raise its 2024 guidance for net interest income by an estimated $2 billion to $3 billion, to $93 billion, according to UBS analyst Erika Najarian.
Large U.S. banks also tend to have more diverse revenue streams than smaller ones from areas like wealth management and investment banking. Both should provide boosts to first-quarter results, thanks to buoyant markets and a rebound in Wall Street activity.
Furthermore, big banks tend to have much lower exposure to commercial real estate compared with smaller players, and have generally higher levels of provisions for loan losses, thanks to tougher regulations on the group.
That difference could prove critical this earnings season.
Concerns over commercial real estate, especially office buildings and multifamily dwellings, have dogged smaller banks since New York Community Bank stunned investors in January with its disclosures of drastically larger loan provisions and broader operational challenges. The bank needed a $1 billion-plus lifeline last month to help steady the firm.
NYCB will likely have to cut its net interest income guidance because of shrinking deposits and margins, according to JPMorgan analyst Steven Alexopoulos.
There is a record $929 billion in commercial real estate loans coming due this year, and roughly one-third of the loans are for more money than the underlying property values, according to advisory firm Newmark.
“I don’t think we’re out of the woods in terms of commercial real estate rearing its ugly head for bank earnings, especially if rates stay higher for longer,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual.
“If there’s even a whiff of problems around the credit experience with your commercial lending operation, as was the case with NYCB, you’ve seen how quickly that can get away from you,” he said.
Even as the major averages have recently hit fresh records, there are plenty of catalysts that could shake things up, including geopolitical tensions and the upcoming U.S. presidential election.
Investors seeking some stability in their portfolios may want to consider high-quality dividend stocks, especially those with a track record of steady income payments.
Analysts conduct thorough research of companies’ fundamentals and their ability to pay and increase dividends over the long term.
Energy infrastructure company Enbridge (ENB) is this week’s first dividend-paying pick. The company moves nearly 30% of North America’s crude oil production and about 20% of the natural gas consumed in the U.S.
Enbridge has increased its dividend for 29 years. It has a dividend yield of 7.7%.
Following its recent investor day event, RBC Capital analyst Robert Kwan reiterated a buy rating on ENB stock. The analyst thinks that recent developments, including regulatory approval of the acquisition of the East Ohio Gas Company, would support the market’s confidence in the company’s ability to grow its earnings.
It is worth noting that East Ohio Gas is the largest of the three utilities (the other two are Questar Gas and the Public Service Company of North Carolina) that Enbridge agreed to acquire from Dominion Energy.
“Dominion utilities represent the next episode in Enbridge’s series of growth platforms,” said Kwan.
The analyst highlighted that the company extended its growth targets through 2026 and now expects earnings before interest, taxes, depreciation and amortization growth in the range of 7% to 9% from 2023 through 2026. That compares with the previous growth outlook of 4% to 6% from 2022 to 2025. Additionally, the company anticipates that this forecast will enable it to increase its annual dividend.
Kwan ranks No. 191 among more than 8,700 analysts tracked by TipRanks. His ratings have been successful 67% of the time, with each generating an average return of 10.2%. (See Enbridge Hedge Funds Activity on TipRanks)
Bank of America
Next up is Bank of America (BAC), one of the leading banking institutions in the world. The bank returned $12 billion to shareholders via dividends and share repurchases in 2023.
The bank announced a dividend of 24 cents per share for the first quarter of 2024, payable on March 29. BAC stock offers a dividend yield of 2.6%.
Recently, RBC Capital analyst Gerard Cassidy reiterated a buy rating on Bank of America with a price target of $39. The analyst is optimistic about the leadership of chairman and CEO Brian Moynihan, who is helping the bank steadily generate improved profitability through a focus on expenses and solid credit underwriting principles.
Cassidy also noted that BAC has a solid balance sheet, with a common equity tier 1 ratio of 11.8% and a supplementary leverage ratio of 6.1% as of Dec. 31, 2023.
“Also, due to its strong capital position and PPNR (pre-tax, pre-provision revenue), it should be capable of paying and increasing its dividend throughout a downturn,” said Cassidy.
The analyst highlighted the bank’s growing deposit market share, its dominant position in global capital markets, and the stock’s attractive valuation. He expects BAC’s profitability to gain from the increased adoption of its mobile offerings.
Cassidy ranks No. 143 among more than 8,700 analysts tracked by TipRanks. His ratings have been successful 62% of the time, with each generating an average return of 14.9%. (See BAC Technical Analysis on TipRanks)
PepsiCo
This week’s third dividend pick is snack food and beverage giant PepsiCo (PEP). Last month, the company reported better-than-expected earnings for the fourth quarter, even as its revenue declined and missed analysts’ expectations due to pressure on demand in the North American business.
Nonetheless, PepsiCo announced a 7% hike in its annualized dividend to $5.42 per share, effective with the dividend payable in June 2024. This increase marked the 52nd consecutive year in which it boosted its dividend payment. PepsiCo currently has a dividend yield of 2.9%.
Overall, PepsiCo is targeting cash returns to shareholders of about $8.2 billion in 2024, including $7.2 billion in dividends and $1 billion worth of share repurchases.
On March 18, Morgan Stanley analyst Dara Mohsenian upgraded PepsiCo stock to buy from hold with a price target of $190. The analyst cited two reasons behind an earlier downgrade of the stock – valuation concerns and his opinion that the consensus organic sales growth (OSG) guidance seemed too high.
However, Mohsenian noted, “Both of these issues have now played out, and we would be aggressive buyers here ahead of a powerful inflection in H2 after PEP bottoms fundamentally in Q1, and returns to above consensus and peer OSG, with PEP’s valuation compression overdone.”
The analyst named PepsiCo a top pick, contending that the market is not fully pricing in the growth prospects of the company’s international business.
Mohsenian ranks No. 383 among more than 8,700 analysts tracked by TipRanks. The analyst’s ratings have been profitable 68% of the time, with each generating an average return of 9.2%. (See PepsiCo Stock Buybacks on TipRanks)
