Bank of America has been struggling to overcome some of the mistakes made during the Great Recession, like the Countrywide purchase and housing foreclosures, just to name two. While Bank of Amereica still has work to do, the worst is behind it and the future is beginning to look very bright. Management is enacting cost-cutting measures to reduce spending by $8 billion annually, which should drop directly to the bottom line.
I expect market-beating stock price appreciation over the next five to 10 years, plus some massive dividend increases in the not-too-distant future. Back in 2008, Bank of America was paying a $0.64 quarterly dividend. Even if in a few years the dividend “only” climbs back to $0.32 quarterly, that is an 8% yield on today’s stock price. Today’s investors have potential for some very handsome returns.
Internet banking – the new money centers?
BofI is still tiny when compared to traditional banks, but it has carved out a very profitable niche. With only one “location,” it serves over 40,000 retail customers nationwide by providing check deposits, bill paying and mortgage originations. By keeping its overhead low, it is able to offer higher rates on savings and CDs, while also offering lower interest rates on auto loans and mortgages.
Management has been able to grow at some very impressive rates and still be profitable. My favorite stat is the fact that the company has grown net income by over 50% annually the past five years.
BofI is still a small bank, but the runway is very long for this company. It could grow its deposit base 10 times over and still be small when compared to Bank of America, the next 10 years should be very interesting.
Flagstar Bancorp Inc (NYSE:FBC) has fallen on hard times, but a new CEO with 30 years experience with the company should get things turned around. The company has already lowered noninterest expenses by $22 million and has increased book value from $16.46 to $17.66.
Flagstar Bancorp Inc (NYSE:FBC) management has three goals that should produce a nice turnaround. First, increase revenue by expanding its mortgage business. Second, doing a better job at controlling costs. Third, get a handle on its legacy costs. I do not own Flagstar Bancorp Inc (NYSE:FBC), but it is a worthy company to watch/study.
Performing this exercise on a quarterly basis will allow you to see and understand trends. It will also alert you to potential problems that might require a little more digging.
The article Investments in 2 Large Banks: Where Did My Money Go? originally appeared on Fool.com and is written by David Paxton.
David Paxton owns shares of Bank of America and BofI Holding. The Motley Fool recommends Bank of America and BofI Holding. The Motley Fool owns shares of Bank of America and BofI Holding. David is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
