Business

2015 Best Year Ever For Banks – Richard Bove

Richard X. Bove, Vice President Equity Research at Rafferty Capital Markets, highlights the major issues with banks in 2015.

Major issues

  • 2015 was the most successful year fundamentally in banking industry’s history; not so stock wise
  • Financial Indices
    • XLF declined 3.6%; down 6.9% YTD in 2016
    • KBW Index declined 1.6%; down 11.1% YTD in 2016
    • S&P 500 declined 0.7% in 2015; down 2.5% YTD in 2016
  • Total commercial banking industry balance sheet in 2015 as reported by the FDIC
    • Equity (unusually high levels)
      • Common equity at all-time record $1.68 trillion
      • Common equity to assets at 11.3% highest since 1939
      • Equity plus reserves as a percent of assets highest since 1935
    • Liabilities (solid funding base)
      • Deposits at all-time record $11.35 trillion
      • Deposits highest as a percent of assets since 1991
    • Assets (high level of liquidity indicates low level of loan risk)
      • Cash and Securities 2nd highest on record after 2014 at $4.75 trillion
      • Cash and Securities at 31.9% of assets lower than 2014 but highest since 1983
      • Net loans at $8.06 trillion highest in history
      • Loans equal 170% of cash and securities in 2015 compared to 315% in 2007
      • Loans to deposits 71.0% in 2015 compared to 89.4% in 2007
      • Loans to common equity have risen in this cycle (2010 to 2015) but prior to this at lowest level since 1950
  • Total commercial banking industry income statement in 2015 as reported by FDIC
    • Revenues
      • Net interest income at all-time record of $398 billion despite record low interest rates on Fed Funds
      • Non-interest income second highest of all-time at $234 billion despite trading issues
      • Revenues at all-time record at $632 billion
      • Operating income up by $15.4 billion in year while operating expenses dropped by $5.9 billion
    • Profits
      • Pre-Provision, pretax income 2nd highest of all-time at $247 billion
      • Pretax income at all-time record at $214 billion
      • Net income at all-time record of $152 billion
      • Common dividends at all-time record $97 billion
  • Total commercial banking industry loan quality in 2015 as reported by FDIC
    • Non-performing loans at $114 billion down from $253 billion in 2009
    • Non-performing loans at 1.39% of loans compared to 31 year average of 2.11% (1984 first year information gathered)
    • Net charge-offs at $33 billion down from $176 billion in 2010
    • Net charge-offs to loans at 41 basis points compared to 81 year average of 56 basis points (1934 first year information gathered)
  • Bottom line stocks being pounded lower in most successful year fundamentally in the industry’s history

Fears of “monster-under-the-bed” were absurd in 2015 and are believed to be unrealistic today

Banks

2015 Best Year Ever For Banks