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The Federal Reserve released the annual stress test results for America's largest banks on June 23rd after the market closed. Most of the winners were not a surprise and while no one failed the
A Pair Trade: Bank Of America And Wells Fargo
Summary
- Due to the strict rules from regulators regarding the balance sheet, Wells Fargo has not been growing and has thus had more capital to return to shareholders in recent years.
- Since the Federal Reserve froze Wells Fargo's balance sheet growth in February 2018, the stock has underperformed peers, including Bank of America.
- With Wells Fargo allocating a larger percentage of its capital return program to share buybacks than Bank of America, we suspect that shares could outperform.
Follow us on Twitter here: @theinvestar Previously a Trader/Portfolio Manager for a Treasury Office managing anywhere from $10-20 billion (treasury assets, retirement benefits, endowment related funds), currently part of a team that oversees an outside investment manager managing almost $30 billion. Previously the founder of theinvestar.com, LLC. theinvestar.com, LLC was a leading news provider on the potash and uranium mining industries supplying data services, commentary, interviews, investment news, newsletters and quarterly industry publications.
Analyst’s Disclosure:I/we have a beneficial long position in the shares of WFC, BAC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Since we already own the shares in BAC, personally we may not enter a short trade, but instead sell off shares in portfolios.
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