Many bank stocks have rallied considerably over the past year. It’s not entirely difficult to see why: a slew of economic data reports in recent months have confirmed that the U.S. economy is on the mend. Slowly but surely, the nation digs itself out of the massive hole caused by the financial crisis.
Consumers are feeling better about their personal finances, the housing market is showing signs of life, and the labor market continues its gradual, albeit painfully slow, recovery. Banks are major beneficiaries of all these tailwinds, and bank stocks are in full rally mode.
One of the biggest banks in the United States is Bank of America Corp (NYSE:BAC), which like the country itself, is slowly getting itself back on solid footing. Is now the time to buy?
Rising from the ashes
As the financial crisis set in, investors watched in horror as many of our nation’s banks, including Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Co (NYSE:WFC), teetered on the brink of insolvency. Stock prices at these banks plummeted, and their dividends were slashed to nearly zero.
Fast forward to today, and you’d think the financial crisis never happened. Banks are back to reporting profitability, and some have raised their dividends many times.
Wells Fargo & Co (NYSE:WFC) had a great first quarter, achieving record net income in what was a solid report. Revenue was roughly flat year over year, but diluted earnings per share rose 23% and the company expanded its return on average assets and return on equity ratios by 18 basis points and 145 basis points, respectively.
JPMorgan Chase & Co. (NYSE:JPM)’s first quarter was equally impressive. Net income and earnings per share clocked in at record levels of $6.5 billion and $1.59 per share, respectively. This represented 33% growth in both metrics versus the first quarter last year.
Bank of America’s continued struggles
Bank of America Corp (NYSE:BAC), meanwhile, continues to be haunted by the memories of the financial crisis, namely in the form of massive legal expenses.
Bank of America Corp (NYSE:BAC) has paid more than $50 billion in mortgage-related legal fees to settle disputes made against its subsidiary Countrywide, which it acquired just before the financial crisis.
The bank reported first-quarter profit of $0.20 per share, missing analyst expectations. In the first quarter, the bank had litigation expenses of $881 million.
These expenses have hurt profitability and impeded the company’s ability to reward shareholders. The bank hasn’t been able to increase its dividend above its current level of $0.01 per share quarterly.