Bank of America was assimilated on July 31, 1998. It acts as a bank holding company and a financial holding company. As a financial institution, it serves individual consumers, small and middle-market business, corporations, institutional investors, and governments with a range of banking, investing, asset management and other financial and risk management products and services. According to Brechner (2012), the institution is known to provide a broad range of banking and nonbank financial services and products.
Citigroup and Bank of America are up sharply after JPMorgan Chase had released results of April 25 to May 23, 2016. The results had beaten the expectation of the analyst but were lower as compared to the same period last year. The first three months had been difficult for the two banks in the U.S while China and Europe spurred excess volatility in equity and fixed-income markets that translated into lower trading revenues for the biggest banks in the nation. As a financial institution, Citigroup is trading its revenues that are trending lower by 15%. The Bank of America, on the other hand, operates a trading division that was expected to take a hit from investor’s decision to sit on the sidelines.
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In the first quarter 2016, Citigroup international has made up 43% of the total revenue down from 38% of the year earlier as the company has closed offices in the various markets. The balance sheets of Citibank are the strongest as compared to the American Bank. In the first three months of 2016, Citibank had the lowest interest as compared to the Bank of America. Also, it also had the weak energy prices that anchored the profitability of the C Stock. Their profitability level has improved this year as compared to the previous year. The stock of BAC has increased to 2.6% simply because it performance had exceeded the analyst’s expectation. Citigroup, on the other hand, could exceed their stock expectation if they set the bar low enough. The Bank of America shares is charging toward their 200-day moving average. Citigroup bank reported above-consensus earnings of $ 1.10 per share on $ 17.6 billion in revenues, which was down 11.1% from last year. The net income was down at 27.1% from last year. Investors increased return on tangible equity to 12% from 11% in 2015 and a 17% increase in the average core from last year.
In, 2016, the market has seen an influx of impressive earnings reports particularly from some of the nation’s largest banks. Both Citigroup and Bank of America announced their latest earnings reports recently. Also, they both manage to beat the Zack Consensus Estimate for earnings per share. BAC posted an EPS of $0.45 that beat the Zacks Consensus Estimate of $0.36. Over the past four years, the BAC has surpassed their expectations by 25% that is consistent with its average earnings beat of 27.56%. Citigroup on the hand has exceeded the Zacks Consensus Estimate of $1.35, thus reporting an EPS of $1.45. This estimate represented an earnings beat of 7.41%. Also, Citigroup has posted an average earnings miss of 3.47% over the last four quarters as compared to the BAC. Despite the fact that revenues collected by these companies should make investors pleased, BAC slightly edges out Citigroup based on the magnitude of its most recent beats, as well as the extent of its beats over the last four quarters. However, Citigroup and Bank of America EPS are lower than the Zacks Consensus Estimate. This factor indicates that the analysts are getting more bullish on Bank of America and Citigroup.
In the last three months, the Zacks Consensus Estimate for Bank of America’s yearly EPS was $1.35, and now it sits at $1.41. Within the same period, the Zacks Consensus Estimate for Citigroup increased from $5.43 to $5.58. Therefore, this numbers reflects a good sign for the long-term prospects of both companies. The BAC had the slight edge based on the magnitude of these revisions but seems to be impossible making this head-to-head almost too close to call. The Bank of America has been able to reduce its recent litigation costs as compared to Citigroup. The banking industry has been spending less on legal fees and fines, but Citigroup has been hit with some heavy costs. It is supposed to refund over $700 million to customers who are victimized by illegal credit card practices. In addition to this, it was fine$140 million which is to be paid at the end of the probe into Citigroup’s Subsidiary Banamex.
The dividend payout is another thing that pushes the Bank of America. Despite the fact that both companies pay out a dividend of $0.20 per share, this is 1.12% of the Bank of America share price, while Citigroup share is not even half of the percent. For those investors who concentrate on dividends, they will boost the Bank of America above Citigroup. Today, both company holds a Zacks Rank #2 (Buy), after recently been upgraded from a Zacks Rank #3 (Hold). There are among the industry that holds a Zacks Industry Rank in the top (28%). Therefore, a lot of the numbers should make investors feel comfortable going forward. Bank of America and Citigroup are very close in head to head competition. The BAC edges the Citigroup out in some of the key categories. However, both the companies should be poised for success shortly and investors should keep note of their stock going forward.
According to the JPMorgan Chase results, the trading revenues were indeed lower not by a significant margin as it, and Citigroup had previously intimidated. However, their income dropped by 11% in the 1st quarter of the year, falling from $5.81 billion in the year-ago period down to $5.17 billion so far in 2016. Also, the investment banking revenue was down at JPMorgan Chase, dropping by 26% which is about the first quarter of 2015. This trend is expected to impact Bank of America and Citigroup as well given their sizable Wall Street operations (Schannep, 2008).
In 2016, Citigroup has led the way with the most exposure when it comes to energy loans, then followed by Bank of America. The Bank of America has improved on the size of its retail operations. It has become news to the Citigroup which has seen their lending margins squeezed since the Central Bank dropped interest rates to almost zero in the aftermath of the financial crisis. The Bank of America is subjected to re-submit their living wills to the Federal regulators while Citigroup had fared better despite the fact that it too came up short according to the regulators. It was at the start of this year that the shares of Bank of America and Citigroup are higher in intraday trading. The shares were 4% and 5% respectively which was roughly halfway through the trading day.
In major market indices, Dow Jones Industrial Average is the oldest, best known, and most followed of the major stock indices. It consists solely of 30 large-cap companies. The companies represent a vast array of American Business particularly from consumer-facing to business-to-business, tech to manufacturing, domestic to international, and everything in between.
Two concepts make the Dow so popular. First, the companies in the index are huge and taken together to represent a huge swath of the U.S economy. They effectively act as a proxy for all the other enterprises. The second concept is that Dow components are nearly universally recognized household names. For instance; Coca-Cola, McDonald’s or IBM investors know that these companies are the real deal particularly with the size, scale, and presence in the economy to accurately stand as a proxy for the overall markets. It has a quirk which is a remnant of its history. Besides, it has an index that is price-weighted which means the companies with a higher share price have a larger impact on the Dows movements. The index covers the largest companies that trade on the Nasdaq Stock Market.
The Nasdaq, on the other hand, is a stock exchange the same as the New York Stock Exchange. It was the first all-electronic stock exchange. Nasdaq is, therefore, a market proxy that is based on certain stocks being publicly traded. It relies on the 4000+ stocks that are being traded on the Nasdaq Stock Market. It has a good proxy when it comes to tech segments of the markets. The majority of the companies that trade on the exchange are tech, which leads to generalization. Companies such as Banks of airlines to coffee shops trade with Nasdaq Composite. When it comes to the stocks weighted by the market cap, Nasdaq is the best representation of the broad markets as compared to Dow Jones. The Dow is the primary index used in the news and particularly by the most public market commentators. It is the oldest and the best known, and it serves the best when it comes to the proxy (Kozmetsky and Yue, 2005). Investors on their side do not consider it as the best since it has just 30 stocks, and it is calculated with the oddball price-weighted system.
Besides, the Dow is prone to all sorts of eccentricities that multiply over time as they try to account for the changes and splits of its components. Both the Nasdaq and Dow refers to an index as a bunch of numbers derived from the price movements of certain stocks. The Dow tracks the performance rate of 30 different companies that are considered the major players in their industries while the Nasdaq, on the other hand, tracks approximately 4000 stocks that are traded on the Nasdaq exchange. The Dow also has companies that are found mainly on the NYSE with only a few of Nasdaq-listed stocks. These two companies both refer to market indices, but only the Nasdaq relates to an exchange where investors buy and sell stocks. However, investors find it hard to trade the Dow and Nasdaq indexes just because they each represent a merely mathematical average which people use to try and make sense of the stock market.
When it comes to calculation, Nasdaq composite index is calculated by using a weighted market capitalization method. It is where a stock’s price is multiply by all shares outstanding. Most technology company trade on Nasdaq as compared to Dow. The Nasdaq reflects more than just the performance of the biggest blue chips (Schannep, 2008). At the same time, it has a high concentration of technology stocks which tend to rise and fall with the fluctuations of that particular sector. In any given day, it is common for both the companies to move in different directions despite sharing some companies such as Microsoft and Intel. Therefore, if Nasdaq and Dow are heading in the same direction, it is a good indicator of the movement of the market at large.
There are several investment lessons that I have learned from this synopsis. First, before investing, I need to think of time, risk, certainties, and the expected return on the investment which I will make. I will make sure that my rate of return on the investment is going to be more than my capital cost. Expanding my business through business investment in another business is a good way to grow exponentially, so much time as there is no hidden debt or complex legal agreements that will bind me to unprofitable deal.
References
Brechner, R. A. (2012). Contemporary mathematics for business and consumers . Australia: South-Westen/Cengage Learning.
Kozmetsky, G., & Yue, P. (2005). The economic transformation of the United States, 1950-2000: Focusing on the technological revolution, the service sector expansion, and the cultural, ideological, and demographic changes . West Lafayette, Ind: Purdue Univ. Press.
Schannep, J. (2008). Dow theory for the 21st century: Technical indicators for improving your investment results . Hoboken, N.J: J. Wiley & Sons.
