Another lawsuit has been filed for $500 million, which will put a bump in the road on Bank of America Corp (NYSE:BAC)’s way to cutting costs. This lawsuit is from the Main State Retirement System over the quality of loan bundles that Countrywide Financial had invested in. Bank of America Corp (NYSE:BAC) has already settled a similar lawsuit with the National Credit Union Association over misleading the credit unions as to the quality of mortgage-backed securities it invested in. Investors responded by driving the stock price down 3.2% in recent sessions.
The bank delivered the highest net income per share it has had in the last five quarters. Revenue rose by 5.5% for the quarter and the firm is on track to hit its savings goals. The actual payouts won’t be too hard on the bank and its investors.
Wells Fargo & Co (NYSE:WFC)
Wells Fargo & Co (NYSE:WFC) has the second highest cash payout at $766 million. It will also offer $1.2 billion in mortgage balance reductions.
Wells Fargo & Co (NYSE:WFC) has had 12 quarters of consistent earnings per share growth, rising from $0.55 per share to $0.92 per share in the period. Its balance sheet has been improving and is combined with an increase in equity due to an influx of assets.
The company has also been dedicated to returning profits to shareholders. Its current annual dividend is $1.00 per share, representing a 2.7% yield. It recently raised the quarterly dividend by $0.03. Since 2009, the total dividend payment has increased from $0.20 per year to $1.00.
The company also has a projected growth rate of 8% annually for the next five years. Wells Fargo & Co (NYSE:WFC) has been considered the most financially-sound bank in the industry. During 2008, it acquired Wachovia and essentially doubled its size. Investors should not fear the interruption of any payouts from Wells Fargo in the next few months.
Citigroup Inc (NYSE:C)
Citigroup Inc (NYSE:C) has a much smaller settlement obligation of $500 million. It recently posted its first quarter earnings results of $1.23 per share. Its revenue beat estimates by almost $500 million, coming in at $20.5 billion.
The company has a strong balance sheet and has been lowering its allowance for bad debts. In the last year, it lowered this allowance by 18% by reducing asset losses. As it continues to reduce these toxic assets and loans, the company will be able to redeploy the $23 billion it has in this reserve.
The bank has been rehabilitating its balance sheet under the guidance of its new CEO and is on track to future growth and future economic health.
Final thoughts
The settlement has been going on for the last few years. Now that banks are actually paying out the settlements, investors may be wondering if this means anything is changing. From the examples here, the payouts won’t make drastic changes to the economics of each company. Of these three, Wells Fargo is still my top bet.
The article The Check Is in the Mail, Now What? originally appeared on Fool.com and is written by Austin Higgins.
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