While none of the large banks are expected to see a very significant improvement in net interest income over the next two years, Stifel Nicolaus expects Bank of America to reduce its annual expenses by $7.1 billion, or 10%, from an estimated $70.5 billion in 2012 to $63.4 billion in 2014. Granted, Bank of America's expenses have been very high because of the legacy mortgage mess springing mainly from the company's ill-timed and ill-considered acquisition of Countrywide Financial in 2008, however, none of the other large-cap banks covered by the firm are expected to see anywhere near BAC's expense reduction or 30% EPS growth from 2013 to 2014:
- After Bank of America, the bank that Stifel Nicolaus expects will have the strongest earnings growth from 2013 to 2014 is SunTrust (STI) of Atlanta. Mutascio estimates EPS to increase by 11% from $2.70 in 2013 to $3.00 in 2014. The analyst estimates that SunTrust will lower its expenses only slightly from $6.2 billion in 2012 to $6.1 billion in 2014, but also estimates that the annual provision for loan losses -- the among added to reserves, which lowers earnings -- will decline by 26%, from $1.2 billion in 2012 to $861 million in 2014.
- Stifel estimates that Wells Fargo (WFC) will see its EPS grow from $3.53 in 2013 and $3.76 in 2014, for earnings growth of 7%. Mutascio estimates the company will see a 2% reduction in expenses, from $49.7 billion in 2012, to $48.6 billion in 2014. Meanwhile, the analyst sees Wells Fargo lowering its provision for loan losses by 17%, from $7.0 billion in 2012 to $5.8 billion in 2014.
- For JPMorgan Chase (JPM), Stifel Nicolaus estimates earnings to increase from $5.35 a share in 2013 to $5.60 in 2014. That's 5% EPS growth. Mutascio estimates the company will cut its expenses from $61.7 billion in 2012 to $61.1 billion in 2014, which is a reduction of just 1%. He also expects JPMorgan Chase's provision for loan losses to increase by 28%, from $3.8 billion in 2012 to $4.8 billion in 2014.
SunTrust, Wells Fargo, and JPMorgan Chase all have "Hold" ratings from Stifel Nicolaus.
Mutascio said that Bank of America is "better positioned for the current environment than many banks that have already bled the loan loss reserves dry, have little exposure to mortgage origination and debt underwriting in the low interest rate environment, and have no material expense reductions on the horizon."
The analyst added that "with the company achieving a 3Q12 Basel III Tier 1 common capital ratio of approximately 9%," which exceeds the full 8.5% requirement including the 1.5% capital buffer required as a Global Systemically Important Financial Institution, "it has rebuilt its capital ratios much faster than we had expected."Meeting the full Basel III requirement "should allow for the company to ask for and receive approval for a dividend increase during the upcoming [2012 Federal Reserve stress test] process, which could improve overall investor sentiment on a name that we believe is under-owned relative to other large cap banks," Mutascio said. Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.
Email. Follow @PhilipvanDoorn
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV