Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Have Bank Stocks Turned Around?

Despite all the ugly headlines coming out of Wells Fargo (NYSE: WFC) and the Deutsche Bank (NYSE: DB) lately it looks as if banks might be turning around. The third quarter earnings reports indicate that revenues are growing at a number of financial institutions.

Here are some recent examples of third quarter 2016 revenue Growth at the big banks:

  • Bank of America (NYSE: BAC) up $1.12 billion from $80.09 billion to $81.21 billion.


  • JPMorgan Chase (NYSE: JPM) an increase of $1.9 billion rising from $93.28 billion to $95.18 billion.


  • Wells Fargo (NYSE: WFC) revenue growth of $450 million, rising from $87.82 billion to $88.27 billion.


  • US Bancorp (NYSE: USB) revenue growth of $250 million, from $20.63 billion in June to $20.88 billion in September.


  • Goldman Sachs Group (NYSE: GS) revenues grew by $1.31 billion going from $28.4 billion to $29.71 billion.


All this looks like a turnaround to me although it is not totally across the board. Citgroup’s (NYSE: C) revenues fell by $930 million, dropping from $72.25 billion in June to $71.32 billion in September.

Why are Bank Revenues Growing?

Bank revenues are growing because there’s been a partial turnaround in the U.S. economy. Some industries are growing, The Bureau of Economic Analysis reported that US gross domestic product (GDP) grew by 1.4% during the second quarter of 2016, real GDP increased by .8% during the same period.

Another reason why bank revenues are growing is that upper income families are making more money. University of California at Berkeley Economist Emmanueal Saez reported that the incomes of the richest 1% of US workers increased by 7.7% in 2015, CBS reported.


Incomes for the 1% of Americans increased by 37% between 2009 and 2015, Saez reported for the Washington Center for Equitable Growth. Meanwhile incomes for most Americans grew by 3.9%.

More Rich People Means More Income for Banks

This benefits banks, because the wealthy are more likely to use banking and investment services. They’re more likely to get a mortgage, carry credit cards, have multiple checking, saving, and money market accounts and more likely to use investment accounts.

Another area that’s been booming at some of the banks has been mortgages, because as home values increase. The affluent are taking out more mortgages and bigger mortgages which can generate more money for banks. The housing bubble in areas like Brooklyn and San Francisco, and the booming stock market are also sending more money into banks.

Another statistic that benefits banks is the growing number of upper income people in Americas. The banks’ customer base is increasing and those customers have more money.


The percentage of Americans living in the highest income households rose from 7% in 2001 to 8% in 2011 to 9% in 2015, the Pew Research Center reported. The percentage of Americans living in upper middle class households rose from 11% in 2001 to 12% in 2011 and 2012.

The share of American income in the hands of upper-income households rose from 14% in 1971 to 21% in 2015. Not only are there more affluent people they have more money to deposit.

Demographics Favor the Banks but are they Good Investments?

The demographics and the income numbers favor the banks but are they good investments? To answer that question we will have to turn the data provided by our good friends at ycharts.

The numbers I found there indicate that banks are paying for investors. Some of the highlights include:

  • Citigroup: offered a .62% dividend yield on October 27, 2016, a 7.02% return on equity on September 30 and is scheduled to pay 16¢ a share dividend on November 3, 2016.


  • Bank of America: paid a 5¢ dividend on August 31, 2016, a 1.32% dividend yield on October 27, 2016, and gave investors a 6.37% return on equity on September 30, 2016.


  • JPMorgan Chase: offered a 10.47% return on equity on September 30, 2016. Provided a 2.65% dividend yield on October 27, 2016, and paid a 48¢ dividend yield on October 4, 2016.


  • Wells Fargo: scheduled to pay a 38¢ dividend on November 2, 2016. Offered investors a dividend yield of 3.24% on October 27, 2016, and a return on equity of 12.78% on September 30, 2016.


  • US Bancorp: Offered a dividend yield of 2.33% on October 27, 2016, and a return on equity of 14.26% on September 30, 2016. Investors received a dividend of 28¢ a share on September 28, 2016.


  • Goldman Sachs Group: offered a dividend yield of 1.46% on October 27, 2016, and a return on equity of 6.78% on September 30, 2016. Paid a dividend of 65¢ a share on August 30, 2016.


Not only are banks growing but they’re good income stocks. If you like stocks that make money and have a bright future you need to add banks to your portfolio. This sector is poised for growth for years to come despite all the scandals.

Disclosure: the blogger owns shares of Bank of America (BAC).

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