The November elections resulting in Donald Trump becoming the President of the United States has changed the stock market in new ways. The bank stocks have been enjoying a high ride as the Great Recession has officially ended. Trump’s growth-oriented economic plan has triggered the rise of bank stocks and Warren Buffet will become even richer in the upcoming months.
Buffet’s Berkshire Hathaway (BRK-A) current owns numerous bank stocks amounting to $148 billion. The company holds 5% of US Bancorp, becoming the second largest investor in the bank shares. Berkshire has 85 million shares of US Bancorp, which was struggling in the stock market a few years ago. The improvements in the financial sector are favored by the investors and the bank stocks have been on the rise since. Buffet who has invested in bank stocks several years ago during the Depression is set to enjoy massive gains due to his hope that even a slight recovery would be beneficial.
US Bancorp has a strong management and numerous competitive advantages. The total net income for the bank reached $5.9 billion for the company and it increased the dividend per share to $3.24. In the past year, the earnings per share increased by 2.5% benefiting the investors. The Americans are becoming economically stable and as a result, the deposits and loans for banks are following a growth path. Naturally, this leads to increase in revenue for the banks. Since 2015, deposits increased by 8.9% and loans gained 6.9%. The overall mortgage banking increased by 13.7% and investment management also grew by 9.5%.
The increase in interest rates always generates more revenue, taking the bank on the growth path. Increasing interest rates will help banks to earn more with long-term loans while paying less for the interest on deposits. Last year, the Federal Reserve had increased interest rates and the net income from interest for US Bancorp increased by 4.6% just in 2016. The national economy will also move towards the growth path when there is an increase in the interest rates. The credit portfolio of Bancorp will continue to increase as the income grows and the economy strengthens. By the end of 2016, the loans were raising and delinquency rates were falling for US Bancorp. In 2016, US Bancorp owned $446 billion in assets, raising to become the fifth biggest commercial bank in the USA.
Unlike other banks, Bancorp didn’t expand to trading or investment banking. It focuses on providing core banking services for small businesses and consumers. The brand equity has helped the US Bancorp to grow steadily despite the Great Recession. During the Recession, Bancorp was one of the worst affected banks as it reduced dividend by 88%. Currently, the bank pays $0.285 per share as dividend for investors after recovering from the economic crunch. This is nowhere closer to $0.425 that the bank paid in 2008. However, in the upcoming year, US Bancorp is expected to provide 6% to 8% returns and the dividend yield is average according to S&P 500 index.