This week saw two of the Top Ten holdings in the EF Tellsons Endeavour Fund report first quarter earnings – Bank of America (2.3%) and Charles Schwab (2.2%).
Here we take a look at their results and prospects for each going forward:
Bank of America
One of our top ten positions in the EF Tellsons Endeavour Fund, Bank of America reported results amplifying their positive exposure to rising interest rates and evidencing continued upside for the US business cycle. Unlike more ‘Wall Street’ focused banks, BoA executives were upbeat with CEO Brian Moynihan reporting: “Consumer spending remains strong, unemployment is low, and wages are rising.”
BoA was the first bank to see recovery in loan growth last year and it continues to lead the way with solid loan growth of 10%, particularly in commercial lending. This indicates the US business cycle is moving positively and that US ‘main street’ can absorb and pass-through more price pressures, inflation and rate hikes. In turn, this gives us further confidence about customer demand, evidenced by a 9% rise in consumer banking revenue. We were not surprised by the investment banking business reporting a 35% drop in fees, similar to other investment banks in this reporting season. Indeed, the Investment Bank’s relative performance to its Wall Street peers has been an area of significant improvement over the last 12 months.
BoA complements our existing suite of long-term US banking holdings in both Silicon Valley Bank and JP Morgan which we have trimmed over the quarter in reflection of their different technology and investment banking business models. Bank of America is a purer play on the US broad industry cycle and these results confirm our confidence in that for this critical tough quarter. The bank has a strong balance sheet and low exposure to Russia alongside minimal counterparty risk in the territory.
Charles Schwab is another top ten holding in the EF Tellsons Endeavour Fund. With a huge scale advantage – the platform now has $7.8trillion of client assets – and structural exposure right across the investment waterfront, Charles Schwab continues to be a business we are confident in despite its recent share price falls.
Charles Schwab has good leverage to the ongoing business cycle and rate sensitivity, similar to Bank of America, but with a strong secular growth driver at the wheel too. Comparative quarter analysis was always going to be tough against the stay-at-home backdrop of Q1 2021 and this is reflected in a 22% reduction in daily trades to 6.58m YoY, but we view their range of deposit and lending services and innovations in the marketplace as key to continued growth of both new clients and driving existing client assets and share of wallet higher.
Client numbers are now at 33.6m, up +5% yoy, and further guidance will be offered later this week which we expect will continue to drive annual net new asset growth of 6-8% because Charles Schwab offers clients a more comprehensive service across a range of financial products. As consumer confidence flows back through the cycle, Charles Schwab is well positioned as a highly trusted brand with scale to continue its momentum and earnings growth prospects in the low ’20’s for the period ahead.
To view our Q4 2021 Commentary, please CLICK HERE
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