If you have an interest in Wells Fargo, be it as an employee, customer, shareholder, or prospective investor, then I encourage you to scroll through this brief slideshow. The following five slides reveal how Wells Fargo matches up to its competitors, banks with more than $100 billion in assets, in five of the most critical measures of bank performance. Wells Fargo How does the nation’s fourth-biggest bank by assets compare to its peers on five essential measures of bank performance?
Profitability With a 12.6% return on average common equity in the third quarter of 2015, Wells Fargo retained its title as the second most profitable big bank in the country, behind only U.S. Bancorp. It’s worth noting that these two banks employ similar business strategies, focusing on commercial as opposed to investment banking, and relentlessly cutting expenses.
Efficiency When it comes to analyzing banks, few metrics are as important as the efficiency ratio – the percentage of net revenue absorbed by operating expenses. A low number is better than a high one, and the typical goal is to come in below 60%, which Wells Fargo does consistently. Its 56.7% ratio is second-best among big banks, behind only U.S. Bancorp.
Dividend Payout Ratio Wells Fargo is an excellent capital allocator, aiming to divide its abundant profits equally among dividends, share buybacks, and retained earnings. Its 37% payout leaves the bank enough new capital to grow, but not so much that it encourages the imprudent risk-taking that the $1.7 trillion bank has avoided so successfully for multiple decades. 37% JPM FITB STI BBT COF PNC USB WFC C BAC
770% Growth in Intrinsic Value Wells Fargo has increased its tangible book value per share by 770% over the past two decades – you can think of this as its net worth. If it weren’t for the exceptional performances of Capital One and U.S. Bancorp over the same 20-year stretch, Wells Fargo would tower over its competitors in terms of the pace of capital accumulation.
Valuation The net result of Wells Fargo’s consistently outstanding performance – with regard to efficiency and profitability, as well as capital accumulation and allocation – is reflected in its stock price – or, more specifically, its valuation. Wells Fargo’s shares almost always trade for a higher multiple of book value than its big bank peers – the chart reflects 10-year median valuations.
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