Why Bank of America, Citi, JPMorgan, Wells Fargo Still Face Hurdles

 

 

NEW YORK (TheStreet) -- The Federal Deposit Insurance Corp. released its Quarterly Banking Profile Thursday. This balance sheet for the U.S. economy showed total assets in the banking system rose by 5.3% year over year in the second quarter to $15.16 trillion.

Also Thursday, the Bureau of Economic Analysis reported its second read for GDP growth for the second quarter, and the annual rate was up solid 4.2%.

An important statistic to track is the total assets for the banks that are considered "too big to fail." These four money center banks control 44% of the total assets in the banking system.

Bank of America's (BAC) total assets slipped 0.6% in the second quarter to $1.643 trillion, 11% of the total.

Citigroup's (C) total assets increased 1.1% to $1.353 trillion, 9% of the total.

The biggest of the big, JPMorgan Chase (JPM) , gained 1.6% in total assets to $2.105 trillion, 14% of the total.

Wells Fargo's (WFC) total assets increased by 3.6% in the second quarter to $1.436 trillion, 10% of the total.

Even with improved balance sheets these banks still face economic hurdles. Here's why:

Reduced Mortgage Activities. The big banks have been cutting their mortgage activities and this contributed to a $3.6 billion year-over-year decline in noninterest income.

Trading Income has been declining for four consecutive quarters down by $721 million, or 10%.

Exposures to Notional Amount of Derivatives. The seven largest banks control 98% of the $239.2 trillion in notional amounts of derivative contracts.

Assessments for the Deposit Insurance Fund. The bigger banks face larger assessments than the smaller banks. The DIF balance rose to $51.1 billion at the end of the second quarter. The FDIC is mandated by law is to increase the minimum DIF balance to a reserve ratio of 1.35% of insured deposits by September 2020. Insured deposits are at $6.109 trillion. If the law was in effect today the DIF would have to be at least $82.5 billion.

Let's look at the technical trading profiles for the four "too big to fail" banks

Bank of America ($16.05) is trading just above its 200-day simple moving average at $15.91. The weekly chart is positive with the five-week modified moving average at $15.61. A semiannual value level is $10.16 with a quarterly risky level at $19.37.

Citigroup ($51.47) is trading well above its 200-day SMA at $49.28. The weekly chart is positive with the five-week MMA at $49.43. A semiannual value level is $48.92 without a risky level.

JPMorgan Chase ($51.47) is trading well above its 200-day SMA at $57.06. The weekly chart is positive with the five-week MMA at $57.63. A semiannual value level is $59.39 with a quarterly risky level at $69.02.

Wells Fargo ($51.24) is trading well above its 200-day SMA at $48.29. The weekly chart is neutral with the five-week MMA at $50.99 with declining 12x3x3 weekly slow stochastic. A semiannual value level is $43.27 with a semiannual pivot at $50.95 and quarterly risky level at $53.09.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @Suttmeier

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates BANK OF AMERICA CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate BANK OF AMERICA CORP (BAC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its expanding profit margins, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: BAC Ratings Report

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