Wall Street appeared to be handing the nation’s top banks its own version of stress testing as the financial stocks fared worse than any other sector for most of June.
On Thursday, however, blue skies returned to bank shares. Shares of many financials popped on the news that Federal Reseve stress exams were over and they were home-free. Wells Fargo & Co. (WFC, Financial) led the rally, up by as much as 4% in trading on Thursday. JPMorgan Chase & Co. (JPM, Financial), Citigroup (C, Financial) and Bank of America (BAC, Financial) jumped 1%.
On Friday, the sunny outlook intensified as buybacks and quarterly dividend increases dominated the discussion.
JPMorgan announced it was boosting its quarterly stock dividend to 80 cents a share from 56 cents a share. It also has approved gross common equity repurchases of up to $20.7 billion from July 1 to June 30, 2019.
Citigroup announced it was moving its stock dividend to 45 cents a share from 32 cents, and buy back up to $17 billion worth of stock over four quarters.
And Wells Fargo said it would increase its quarterly dividend to 39 cents a share and would repurchase $3.48 billion in common shares.
Morgan Stanley (MS, Financial) and Goldman Sachs (GS, Financial) were excluded from the party and required to keep their capital distributions unchanged. Shares of both banks dropped nearly 1% on Friday afternoon.
A total of 34 banks received a clean bill of health from the Fed. The U.S. division of Deutsche Bank (DB) was the only federal institution that failed its stress test.
Banking industry
GuruFocus’ industry overview page displays the size of the global banks in terms of market cap.
The largest is JPMorgan Chase with 17.4% of the industry, followed by Bank of America with 14.1% and Wells Fargo at 13.2%.
All three banks have a price-book ratio that exceeds 1. But they have largely different Shiller price-earnings ratios. Bank of America has the highest at 43.21, followed by JPMorgan’s 15 and Wells Fargo’s 13.81. The same ratio for the S&P 500 was 32.53 as of Friday afternoon. That is an increase of 0.76%.
Wells Fargo
The Peter Lynch chart suggested the bank’s shares are a bargain. Wells Fargo popped more than 5% to over $56 a share, coming up from a 52-week low of $49.27 a share.
GuruFocus' March records show that the price-to-tangible book value of Wells Fargo stood at 2.03 and is ranked lower than 78% of more than 1,600 peers in the Global Banks industry.
Current metrics show Wells Fargo’s book value per share is $36.67, an amount that has steadily increased over the last decade. (For example, in 2007, the book value per share was $14.) It has a price-to-tangible-book ratio of 1.34. At a stock price of $49.27, it trades for a 34% premium to its tangible book value.
Its regulatory troubles have played a major role in sinking its stock price, at least in some cases, to more attractive levels for a pack of guru investors. At least five gurus, including Jim Simons (Trades, Portfolio), Ray Dalio (Trades, Portfolio), David Tepper (Trades, Portfolio), George Soros (Trades, Portfolio) and Sarah Ketterer (Trades, Portfolio), loaded up on the stock in the initial months of the year.
Wells Fargo was rated 4 out of 10 in financial strength and 3 of 10 in profitability and growth,
JPMorgan Chase
At $105.67 a share, the New York-based bank’s stock was up 0.71% in afternoon trading. In spite of losses in the month, the Peter Lynch chart suggested that it is still overpriced.
Current metrics show JPMorgan’s book value per share is $67.48. With a stock value of $105.67, it has a price-to-tangible book ratio of 1.57. It trades for a 57% premium to its tangible book value.
More gurus sold out of the stock or reduced positions than bought or held in the early months of the year. Among the gurus who called it quits were John Rogers (Trades, Portfolio) and Bill Nygren (Trades, Portfolio). Others who reduced their positions were Charles Brandes, Jeremy Grantham (Trades, Portfolio), Chris Davis, Mario Gabelli (Trades, Portfolio), Mairs and Power and Richard Pzena (Trades, Portfolio).
GuruFocus gave JPMorgan 4 out of 10 in financial strength and 3 of 10 in profitability and growth.
Bank of America
The bank was trading down in the afternoon. It stood at $28.53 a share, falling 0.43%. The Peter Lynch chart suggested it was trading just a few dollars higher than fair value.
GuruFocus’ March metrics show it had a price-to-tangible book value of 1.69, which is lower than 74% of its peers in the Global Banks industry.
Current metrics show the bank’s book value per share stands at about $23.63. The metric has remained at about $20 to $22 since the banking crisis. Bank of America’s price-to-tangible-book value ratio is 1.21. At nearly $28.53 a share, the metric suggests it is trading at a 21% premium to its tangible book value.
As with JPMorgan, more gurus decided to close up shop and reduce their positions than expand their holdings of Bank of America stock in the first quarter. Among the gurus who sold out were Paul Tudor Jones (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio) and Alan Fournier (Trades, Portfolio).
GuruFocus gives Bank of America a financial strength rating of 4 out of 10 and a profitability and growth rating of 3 of 10.
