Banking & Finance

Are Bank Stock Investors Ready for Lower Dividends and Lower Book Values?

Bank of America Corp. (NYSE: BAC) was last seen down about 6% at $20.00, and its dividend yield of 3.6% is not as high as some of the others because that dividend had been kept lower for longer by regulators. At the end of 2019, its book value was listed as $27.32, up from $26.96 in the prior quarter. Its tangible book value per share was $19.41, up from $19.26 in the prior quarter.

Citigroup Inc. (NYSE: C) ended 2019 with a tangible book value per share of $70.39 (up from $69.03 in the prior quarter) and a stated book value per share of $82.90 (up from $81.02 in the prior quarter). The current share price of $39.25 does not match up with those book values, and a current dividend yield of 4.8% on the common shares seems too high. Citi shares are down about 53% from their 52-week high.

Goldman Sachs Group Inc. (NYSE: GS) was down 4.7% at $147.35 on Wednesday. Its dividend yield was 3.4%. Goldman Sachs ended 2019 with a stated book value of $218.52 and a tangible book value per share of $205.15. Those compared with $218.82 and $205.50, respectively, in the prior quarter. This bank holding company’s stock price is still down about 40% from its highs.

JPMorgan Chase & Co. (NYSE: JPM) was down 5% at $85.35, with a 4.2% dividend yield. The bank’s tangible book value per share was $60.98 at the end of 2019 and $60.48 in the prior quarter. The top bank in the country has seen its stock drop 40% from its high.

Morgan Stanley (NYSE: MS) was recently down 7% at $31.50, with a current 4.4% dividend yield. Its book value was $45.82 per share and its tangible book value was $40.01 at the end of 2019. Morgan Stanley is down over 45% from its highs, and the acquisition of E*Trade is still pending.

Wells Fargo & Co. (NYSE: WFC) was down over 7% at $26.50, and its dividend would screen at 7.7% at this time. Wells Fargo is still under stronger scrutiny than the other major banks due to its account opening scandals and other operational flaws in recent years. The stock is down almost 52% from its 52-week high, but that is down closer to 60% from the highs seen before the account scandals hit.

The good news so far is that the only item that has been cut in the United States is the stock buybacks, and so far that is only temporary. The bad news is that earnings could get bad enough in the recession that dividends and book values could all come under pressure if the current economic situation gets much worse and stays that way.

Banks do not offer earnings guidance when they report results. It is also very likely that the two emergency rate cuts and rapid deterioration in March may not see their full implications hit until April and May. That means the earnings may look or feel artificially better than they would be had the market and economic carnage started in January instead of February, then ramping into the abyss in March.

Bank earnings will be coming out in the next two to three weeks. The Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR, or stress tests) are not due until June, and by then the markets will have witnessed just how bad the monthly economic numbers look.