The financial meltdown and Great Recession bottomed out in 2009, but it took another five years for the banking sector to bounce back from the wreckage caused by reckless lending and trading.
Now, with balance sheets repaired and overall economic growth accelerating, bank stocks are once again throwing off solid returns. The best of the U.S.-based banks now is Wells Fargo & Co (WFC). San Francisco-based WFC posted stellar fiscal 2014 fourth quarter results today before the market opened, underscoring the wisdom of a strategy that emphasizes lending and deposits rather than high-risk trading.
WFC earnings in the quarter came in at $5.7 billion for the three months ended in December, an increase of 2% compared to the same period a year ago. Earnings per share (EPS) reached $1.02, a year-over-year increase of 2% and in line with Wall Street’s expectations.
WFC generated fourth-quarter revenue of $21.4 billion, a year-over-year jump of 4% and beating analysts’ consensus of $21.23 billion.
For the full fiscal year, Wells Fargo posted earnings of $23.1 billion, up 5% from 2013, and EPS of $4.10 a share, also up 5% from the previous year. Wells Fargo earnings in the quarter and full year were largely driven by increased commercial and industrial loan activity, a trend likely to continue. WFC stock is a great banking play now on America’s growing economic strength and resurgence consumer borrowing.
WFC: Steady Hands on the Tiller
During the last three months, Wells Fargo emerged unscathed from the turmoil that’s hitting its peers, notably JPMorgan Chase & Co. (JPM), due to risking trading that harks back to the bad old days that precipitated the global financial crisis. As the Republican-controlled Congress currently unravels the regulatory restraints put in place since the recession, the banking sector could be in for another period of excess and volatility.
But not Wells Fargo, whose management provides “steady Eddie” prudence. Wells is a leader in the U.S. mortgage market, which continues to recover as the economy expands and unemployment declines. That said, the bank also is diversified and provides wealth management and brokerage services, two segments with high margins.
Wells Fargo holds $1.6 trillion in assets, which it’s able to fund at a lower cost than its competitors because of its ability to attract low-cost deposits. At the same time, the bank enforces tough risk controls and maintains high lending standards, which helps WFC keep a lid on write-offs for bad loans.
The bank also is adroit at customer cross-selling and has become a powerhouse in mortgage lending, which will hold it in good stead as the housing market and construction activity grow more robust in 2015.
WFC’s annualized return on assets (ROA) of 1.47% is the hallmark of consistently strong financial performance. During the past 13 years, the bank’s median ROA has been a healthy 1.55%.
Another encouraging sign for WFC: Among its peers Bank of America Corp (BAC), Citigroup Inc (C) and JPMorgan Chase, WFC is the most concentrated in the United States, which is showing the greatest stability and growth now among developed nations.
With a dividend yield of 2.7% and a clear path to growth ahead, WFC stock is a bankable combination of growth and safety.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
