This past week J.P Morgan (JPM) and Wells Fargo (WFC) both reported quarterly results. While I don't take quarterly results too seriously, it's always a good read to see what's happening in the business and it's industry. I'll focus on WFC since it's a portfolio holding. WFC reported a record quarter, with net income totalling $4.2 billion, on $21.6 billion in revenue. That's a 14% and 20% jump, respectively, from the previous quarter (annualized #'s). Wells is firmly back in growth mode. I won't bore you with all the nitty gritty of the numbers, but the key take-aways are:
* improved revenue and income growth, thanks to Wachovia subsidiary taking market share
* improved quality of loan portfolio, net charge-offs fell to 1.25% from 1.73% a year ago
* improved tier 1 capital to 7.81 ( a measure of health for banks, under new Basel III rules )
* BIG dividend raise (83%) to $0.22/share/quarter. $0.88/share/year. Now yielding >2.5%
* continued reserve releases ( money set aside to cover bad loans-released back into earnings)
With this solid performance, combined with management's comfortable outlook, it's clear the U.S. economy is getting better - not worse. While WFC is not the cheapest bank out there, it is arguably one of the best. Wells deserves a premium, which will happen over time. WFC is good value at <$30. As I have noted before, the market has come quite far since the lows of last fall and is in need of a breather. It's a good time to have cash ready to deploy at lower prices - which may come sooner than you think.
In case you are wondering, here's a ranking of "cheapness" of the banks in my portfolio. The higher the rank - the cheaper the company - the more bang for your buck.
1st place - Bank of America
2nd place - Citigroup
3rd place - Wells Fargo
You'll notice that there are no Canadian banks listed. The "big 6" banks in Canada are fine institutions, but they are not cheap.
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