October 15, 2018 / 3:59 PM / a month ago

Breakingviews - BofA punches above Wells Fargo’s weight

Bank of America Chief Executive Brian Moynihan smiles during an interview in Hong Kong March 8, 2013. REUTERS/Bobby Yip

NEW YORK (Reuters Breakingviews) - Bank of America is punching above Wells Fargo’s weight. The Charlotte-based bank earned $6.7 billion for its common shareholders in the third quarter, or an 11 percent annualized return on equity. In other words, it lagged its West Coast rival’s performance, as it typically does – this time by a percentage point. Yet the two now trade at the same multiple of 1.65 times tangible book value, an implicit valuation premium for BofA. Boss Brian Moynihan’s turnaround has taken shape over years. Tim Sloan at Wells may close the gap again before long.

There are a few similarities between Sloan and the BofA chief executive. Both ended up running their respective banks after a predecessor left under a cloud. Neither was considered the best person for the job. And each of them struggled to quickly control the various issues plaguing their franchises.

Moynihan, who took the reins at the $280 billion BofA in 2010, is now reaping the benefits of years spent overhauling the operation. He has been helped greatly by last year’s U.S. tax cuts and the Federal Reserve’s tightening of monetary policy – the bank was one of the best placed to benefit from rising interest rates. But he marshaled a solid set of businesses, pulled ahead of fellow laggard Citigroup, and now has the results to show for it.

The three months to the end of September may mark a turning point for the $250 billion Wells and Sloan. Deposits and loans are still declining, and the bank is still forbidden from growing its balance sheet thanks to a consent order from the Fed reflecting past failures in governance and risk management. But Sloan is now getting expenses under control, setting the bank up for a return to growth.

Still, it must smart a bit to be running a once-standout lender that investors now peg at the same price-to-tangible-book multiple as BofA, until two years ago regarded as one of the slowpokes of the industry. But if Moynihan managed to put BofA’s past behind it, despite all the doubters, then perhaps Sloan can, too.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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