Wells Fargo (WFC)

They are the Cadillac of the operations. He thinks they will get better growth going forward as Interest rates start to normalize. It is a good safe pick.

Has done better than some of the other big money centred banks in the US. He is fairly cautious on the big banks in the US. Doesn’t think all the bad news is priced in. This bank missed expectations in Q1 by about 5% year-over-year. A big part of that was growth in the loan loss provisions because of oil and gas. Prefers regional banks such as Columbia Banking System (COLB-Q) and City Holding (CHCO-Q).

A large money centred bank, and a little more mature and stable than a Citigroup (C-N) or Bank of America (BAC-N) coming off the ‘08 experience. Not as inexpensive as the others, but more stable. He likes this bank. Citi is trading well below its tangible BV.

Had held this, but as it became clearer that equity markets are more sustainable, he was interested in having a bit more capital market exposure. Because of this, he recently sold his holdings and added J.P. Morgan (JPM-N) as a new position.

Best of breed in terms of quality of lending. If there are headwinds, this will be one of the better ones to own. He doesn’t like the banks overall, however.

It is a premier, high quality US bank. He has JPM-N, but they are similar. The issue has been that all US financials have underperformed over the last year. Banks need higher interest rates over time to earn net margins. Eventually we will see more normal interest rates. Now is not the time to sell, maybe even buy a bit more.

Citigroup (C-N) or Wells Fargo (WFC-N)? There are very large differences between these 2. This would be more like our Toronto Dominion (TD-T), with mortgages, retail banking and being more consistent. You are not going to get huge positive upswings when things go really well, but you are not going to get those down swings either. Longer-term this has more prudent management.

Everybody and their brother in banking would like to be a Wells Fargo. They continue to have a pristine balance sheet. A phenomenal profit machine. They have the model right. Have really no investment banking arm, they are really a retail bank, and are at the low point of the cycle for banks with the low rates. Theoretically they are at a point in the cycle where this would be the time to buy. Financials have been very poor performers this year.

The US economy improving should benefit them. Energy was a headwind, but last quarter they increased provisions for energy loans and feel that is more than enough for this year at these oil prices. They are the largest lender for residential housing and mid-sized autos. When we get rate increases this will be a positive also.

Trading at $49.05, and his model price is $47.02, a 4% downside. Doesn’t see any big upside on this.

Kept its nose clean during the financial crisis better than any other US bank. If you are looking for a blue-chip, this would be the one.

Very attractive right now, but will be more attractive in the future. Probably the most defensive of the big money centred banks, but also has the highest multiple. He would avoid this for a little longer.

One of the largest originators of mortgages. Very stable loan book, and growing loans reasonably well. He has been looking for a steeper yield curve. We don’t have this because people are not very confident about the economic outlook or that the federal reserve is actually going to raise rates. If you take a position, over time you are going to see an ability for them to utilize their balance sheet, and it will be very, very profitable.

Historically US banks bottom right around this time of year. What you want now are the technicals to support that. There are some early signs that this might want to be bottom at around current levels. Has been slightly outperforming the market, which has been going down. Probably slightly higher than its 20 day moving average, and momentum indicators are probably starting to show early signs of bottoming. Probably a good time to be considering this as an interesting seasonal play right through until approximately May.

More focused on meat and potatoes banking. Confidence is shaky, but the ability for the US consumer to spend is significant. Household debt is about 110% of income vs. Canada at 165%. It is not a buy, but a hold. He prefers regionals such as COLB-N, who are better at cross selling banking products.