From my own experience, and from discussion of the matter with others, I find it difficult to find a bank that actually has a positive rapport with its customers, and likewise, shows steady gains in the market. One bank I've found to be favorable with customers and investors is Wells Fargo (WFC), which I will discuss in detail below.
According to Dick Bove of CNBC news, banks are expected to be in the best shape this year than they have been in three decades. Bove predicts a 25% surge in the buying sector and is recommending investing in JP Morgan Chase (JPM), Citigroup (C), and Bank of America (BAC), due to their low stock costs relative to the actual cost of the company. This may prove true, however, Wells Fargo still has the advantage of a higher market cap, and its current price increase compared with its competitors.
The Wall Street Journal reported that at the Business Roundtable's first-quarter survey of 128 CEOs, 81% of them expect sales to increase in the next six months, and 48% said their companies will increase U.S. capital spending. This projects a positive outlook for banks. Although there is expected sales and capital growth, less than half of the CEOs said they'd increase hiring, and 16% said they expect to trim staff in the next six months. From this, banks can expect growth for loans, trading income and pre-tax earnings.
I've always felt that giving is great, but is also a way of showing good position. If a company is doing well, it can afford to give, and recent news reports prove this to be true for Wells Fargo. Last week, Wells Fargo announced a record $2.8 billion in loan commitments and tax equity financing in 2011 to businesses and projects with a direct positive impact on the environment. These are the types of things banks need to be doing to build up a positive reputation, leading to increased costumers, and thus increased revenue.
Everything is about going green and helping the environment and the economy now, so if banks were smart, they would capitalize on this like Wells Fargo does. The head of Wells Fargo Environmental Finance, Barry Neal, states that recent developments in renewable energy, green building, and other environmental markets are providing a strong base to stimulate global economic growth, and facilitate the flow of important financial support for a variety of green enterprises. "As our investments and lending activity demonstrate, Wells Fargo has long recognized this opportunity and the need to support our customers, who are leading the way in creating a better, more sustainable future," Neal said. This is exactly the type of innovative thinking companies need to keep up with the current economic trends.
Wells Fargo isn't the only company catching on to the do-good theme. Its competitors have been seen in the headlines for their contributions as well. According to the New York Times, last February, JPMorgan Chase donated a home to an Iraq war veteran in Bucoda, Washington, and Bank of America waived the $140,000 debt a Florida man still owed after the sale of his foreclosed home.
This month, a $25 billion foreclosure abuse settlement was reached between the government and five major banks, which have committed $17 billion in assistance to borrowers who have the intent and ability to stay in their homes. This type of commitment will help the economy tremendously, not just by preventing foreclosure, but also by allowing demolition and donation of homes that will reduce a large amount that are in legal limbo, creating hazards and depressing property values, according to Patrick Madigan, an assistant attorney general in Iowa.
Recently, Wells Fargo advisors recommended a breather from trading its stock, but said they are still bullish on stock over the longer term. The advisory firm runs $8 billion in assets through its managed ETF portfolios, which are built around five main investment strategies. Although it seems a bit skeptical that advisors are taking what seems to be a safe route, their suggestions are not un-wise. They are recommending clients increase positions in cyclical stock funds during market pullbacks, which they say, tend to do better when economic growth is firm.
JPMorgan may still be suffering from its latest legal dilemma with MF Global after it demanded to be paid back for an over-drawn account of $175 million. MF Global had to transfer cash from a customer account to its own to meet the demand.
Although Bank of America stock has climbed 70% this year after passing the Federal Reserve's stress test, it is still facing questions about its ability to generate earning growth and about potential mortgage-related losses from its 2008 Countrywide Financial acquisition. My suggestion for Bank of America as a company is to enhance its customer service, as it is typically the most complained about bank in that department.
Bank of America has also been in the news for its CEO making $8.1 million last year, a whopping four times more than the previous year, however significantly less than the other large U.S. banks. Compensation for Wells Fargo's CEO rose about 5% to $19.8 million, and Citigroup's CEO made $14.9 million.
Overall, it seems the banks will be doing well this year, but investment wise, Wells Fargo is probably the best bet. It is seemingly on the right track with its focus on improving economic stability, not to mention its solid plan for growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.