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While America's largest banks weathered the spring banking turmoil better than regional banks, they still saw the pressure of higher interest rates as depositors withdrew funds to earn higher returns elsewhere.
Furthermore, the higher cost of money slowed down in investment banking activities such as mergers and acquisitions, initial public offerings and capital raising activities. As a result, the bank The stock lagged the broader S&P 500. so far this year an increase of 23%. The KBW Nasdaq banking index fell 5.6% during the same period.
Wells Fargo (New York Stock Exchange: WFC) rose 21%, Citigroup (New York Stock Exchange:C) increased 9.7%, and Bank of America (New York Stock Exchange: BAC) gained 1.3%.
During the year, Citigroup (C) continued its restructuring by shedding retail operations in regions it now considers non-core and narrowing its ranks to make its organization more efficient. In May, it announced plans to spin off its retail banking and small and medium-sized banking operations in Mexico through an IPO. Earlier this month, Bloomberg News reported that the bank is closing its municipal bond business as part of its mission to shore up its yields.
The bank saw growth in each of its five core businesses in the third quarter of 2023, helping Citi (C) beat consensus estimates on earnings and revenue. At the same time, it raised its guidance for full-year 2023 net interest income, excluding markets, to $47.5 billion from its previous forecast of ~$46 billion or more.
Beginning in the fourth quarter of 2023, Citi (C) will align its reporting structure with the five core businesses: Services; Markets; Banking; Global Wealth Management; and US Personal Banking
Meanwhile, Wells Fargo (WFC) is still attracting the attention of regulators more than seven years after employees creating millions of fake accounts came to light in 2016. Wall Street Journal reported that regulators issued formal orders to the bank requiring it to improve procedures to catch criminals who may be using accounts in its consumer division. As punishment for the 2016 scandal, the Federal Reserve still caps Wells Fargo's assets at $1.95 trillion.
Like other banks, Wells Fargo is also cutting staff to reflect the slow pace of deals. Its third-quarter earnings and revenue continued to rise both quarter-over-quarter and year-over-year, beating analysts' average estimates, helped by its cost-cutting actions.
Bank of America (BAC) also cut staff in some areas but expanded in others. In March, the bank announced cuts to its wealth management and banking and lending division, according to a Bloomberg report. And in May it unveiled a plan to expand into nine new markets, including four states it had not operated in before: Nebraska, Wisconis, Alabama and Louisiana.
The bank's profits grew in the third quarter, helped by higher net interest income and the strength of its Global Markets business. The company added customers and accounts across all its lines of business in a “slowing economy in which U.S. consumer spending was still higher than last year but continued to slow,” said BofA CEO Brian Moynihan.
Looking ahead, debate with regulators is likely to intensify after they proposed final Basel III rules that will increase capital requirements for larger banks. Earlier this month, the CEOs of the largest U.S. banks told a U.S. Senate committee that they could meet the higher capital levels, but that stricter rules would likely hurt their ability to serve customers. smaller businesses, rural communities and smaller banks.
On the earnings front, the capital markets and investment banking activities of large US banks will likely benefit once the Federal Reserve begins lowering interest rates. However, net interest income will decline, reversing the gains of the last year and a half.
Based on recent comments by Citigroup (C) CFO Mark Mason, SA, analyst Jeff Anderson expects Citigroup (C) to deliver rough fourth-quarter results when factoring in lower-than-expected revenue, a charge from the FDIC of $1.65 billion and $1 billion in restructuring. charges. It expects full-year 2023 EPS, excluding charges, of $6.04.
Earlier this week, Odeon Capital analyst Dick Bove upgraded Bank of America (BAC) and Wells Fargo (WFC) to Buy, as well as three large regional banks, noting that lower rates will boost asset values and the real capital of banks, decreasing the need for share offerings.
Comparing the ratings of the three banks, the SA Quant system rates Bank of America (BAC) and Wells Fargo (WFC) as Strong Buys, with Citigroup (C) as a Hold.
The average SA Analyst rating is a Buy on all three stocks, as is the average Wall Street Analyst rating.
