Jamie Dimon's annual letter sure didn't make you feel great about owning bank stocks, especially that call-to-action moment where he pretty much warned that turning the banks into utilities would be bad for the country.
But would it be bad for the stocks? When I looked at everything that happened in yesterday's market, the most glaring thing, the ugliest portion of the whole tape, came from the banking group -- where stocks just gave up whatever meager hope might have been there before the quarters are reported.
Banks, lest we forget, are immensely profitable. They take your money in, they lend it or invest it, they buy back stock, they pay big dividends and you get income and growth from them.
Oops. That's no longer the case, really, is it? They take your money and they pay all sorts of internal regulators and controllers with it ,while they do nothing with it to generate any sort of outsized return and then they try to return capital to you but the regulators tell them what to do.
Which brings me back to the utility question.
Banks could only wish they were utilities, which, by the way, are consistent, pay a good dividend, and have some growth characteristics that banks should be envious of.
We know that Dimon's stock has done as well as the S&P 500 during his tenure, which is still better than almost all in his group.
But let's compare the biggest deposit bank with one of the biggest -- if not the biggest -- utility: Bank of America (BAC) and American Electric Power (AEP). Five years ago today, Bank of America was at $13. Today it is at $12.85. American Electric Power was at $36.50. Today it is at $65.60. You got about $10 in dividends from AEP in that period, while you got about $0.50 from Bank of America.
Without even including the power of dividend compounding, one could easily argue that we wish the government would turn banks into utilities - as they offer some genuine performance and income. They are exactly what bank stocks used to be!
Now it wasn't always that we declared banks just creatures of net interest income, which, in some ways, is the equivalent of what the states will let AEP earn. That's just since Dodd Frank and the Volcker rule: where these banks were stripped of creative ways to make more money. Once you took that away, the street gravitated not toward analyzing any fee streams, no matter how much they were augmented, or any trading fees, given that they have been crimped beyond belief, but just settled on that net interest margin as a gauge.
Again, that's a lot like what has happened with utilities. We don't really care what else they generate, we just look at what relief they get from the regulators.
Again, the regulators in utilities clearly are willing to give investors in their flock better returns than the bank regulators are.
Now you could say that I am ruining the comparison by using Bank of America as the brass standard, here. But Keycorp (KEY) HAS moved from $8.8 to $10. PNC (PNC) from $66 to $81. BB&T (BBT) has gone from $28 to $32. First Horizon's (FHN) moved from $11 to $12. Those are all pretty representative examples of banks you wish were utilities. (To be fair, JPM has gone from $43 to $57 and Action Alerts PLUS holding Wells Fargo (WFC) has gone from $29 to $46, but they still can't touch AEP).
Oh, and lets throw in something that perhaps is far more important: Have you been able to sleep at night, owning Bank of America? Go try the sominex of AEP, you might like it.
So, maybe banks serve vital functions, but as far as I am concerned, the function that we want them to do, give us growth and income, can be much better found in the utilities that Dimon doesn't want banks to be turned into.
No wonder the group is considered such a pariah, right now. As we head into what will be yet one more crummy bank-earnings season, given the opportunities to make money with them, either capital appreciation or capital preservation, they deserve the opprobrium.