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Wells Fargo: 26 Quarters--- Still The Most Profitable Bank

by Salman Alleem Khan

SNL Financial Feature Story

Wells Fargo & Co. continued to be the most profitable of the largest six U.S. bank holding companies through the first quarter of 2014.

The most consistent performer of the group in terms of profitability since the financial crisis, Wells has managed to beat its largest peers in terms of return on average assets for 16 straight quarters. The record $6.08 billion, including noncontrolling interest, it earned in the first quarter translated to an annualized return on average assets of 1.59%, according to SNL data. The bank also marked its 17th consecutive quarter of EPS growth.

"Our solid first quarter results again demonstrated the ability of our diversified business model to perform for shareholders," Chairman, President and CEO John Stumpf said in the company's April 11 earnings release.

The rest of the cohort's return on average assets ranged from 76 basis points to 89 basis points in the first quarter, with the exception of Bank of America Corp.

Bank of America was the only institution among the largest six bank holding companies to report a first-quarter loss. The bank was hit by $5.6 billion in litigation expense related to a Federal Housing Finance Agency settlement and legacy mortgage-related matters. As a result, the bank's return on average assets fell below zero for the first time since the second quarter of 2011.

Despite the legal headwinds, Bank of America has been trying to boost profits by cutting costs. While this may help in the near term, "the significance of the cuts could come at the cost of future revenue generation capabilities," FBR analyst Paul Miller noted in an April 17 report.

JPMorgan Chase & Co., the nation's biggest bank by total assets, reported lower-than-expected profits of $5.27 billion in the first quarter. Although profits were in-line with what the bank reported in the fourth quarter of 2013, the figure represented a 19.22% slide from the first quarter of 2013. The institution recorded $17.92 billion in total profits in 2013, while wading through legal settlements. The bank's ROAA figure was flat at 88 basis points as of March 31, 2014, compared to the previous quarter.

Citigroup Inc., which had its capital plan rejected under the latest Comprehensive Capital Analysis and Review, started 2014 with a substantial increase in profits. The bank reported a quarter-over-quarter increase in net income of 59.14%. ROAA for the institution jumped by 31 basis points to 84 basis points at the end of the first quarter.

The two investment bank-focused bank holding companies - Goldman Sachs Group Inc. and Morgan Stanley - also reported profitable first quarters. After a below-par fourth quarter of 2013, Morgan Stanley saw an increase of 28.68% in net income fueled by investment banking revenues. CFO Ruth Porat mentioned on the company's April 17 earnings call that the investment banking pipeline is strong across all products, while the flow for both equity and fixed-income underwriting seems healthy going into the second quarter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.