Since the beginning of the year, the banking industry has faced several challenges as it witnessed the failure of three regional banks. Although the industry has shown signs of recovery lately, concerns over the sector’s stability remain.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the banking industry.
Major U.S. banks, like JPM, BAC, WFC, and C, all reported higher-than-expected revenue and earnings in the second quarter. The banks benefited from higher interest rates leading to higher net interest income. Investment banking remained a sore point for banks as the lack of deal-making affected margins.
However, deal-making is expected to revive during the year's second half. Despite the growth prospects, lower consumer spending, slower loan growth, and the increased costs of retaining deposits cloud the outlook for the sector. Moreover, stress in the commercial real estate (CRE) sector meant the banks set aside more money for potential defaults arising out of the industry.
With the Fed raising the benchmark interest rate to its highest level in more than 22 years, banks will likely benefit from it. Fed Chairman Jerome Powell left the door open for another rate hike or a pause in rate increase at its next meeting in September.
Investors’ interest in the banking industry is evident from the Invesco KBW Bank ETF’s (KBWB) 14.7% returns over the past month.
Let’s take a closer look at the fundamentals of the featured stocks.
JPMorgan Chase & Co. (JPM)
JPM operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM).
JPM’s total net revenue reported for the second quarter ended June 30, 2023, increased 34.5% year-over-year to $41.31 billion. Its net income rose 67.3% year-over-year to $14.47 billion. In addition, its EPS came in at $4.75, representing an increase of 72.1% year-over-year. Its return on common equity (ROE) came in at 20%, compared to 13% in the year-ago period.
Analysts expect JPM’s EPS and revenue for the quarter ending September 30, 2023, to increase 21.8% and 20.6% year-over-year to $3.80 and $39.45 billion, respectively. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 39.1% to close the last trading session at $157.76.
JPM’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
Bank of America Corporation (BAC)
BAC provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide.
On June 27, 2023, BAC announced it would expand its financial center network into nine new markets over four years, reaching 200+ markets in 39 states. More services for clients and communities. Brian Moynihan, CEO at BAC, said, "As part of our high tech and high touch approach, we continue to invest in digital capabilities and to modernize our financial centers to reach more clients and meet their evolving needs."
Brian Moynihan expects that by expanding BAC's capabilities in the new markets, they will be able to provide improved service to clients and contribute to the growth and development of local communities.
On May 10, 2023, BAC opened a new branch in Luxembourg to enhance capabilities for clients in core markets. It will support clients with local bank accounts and transaction banking products. Focus on serving NBFIs, given Luxembourg's prominence in the investment fund industry.
For the second quarter ended June 30, 2023, BAC’s total revenues increased 11% year-over-year to $25.20 billion. Its net income applicable to common stockholders rose 19.7% year-over-year to $7.10 billion. Additionally, its EPS increased 20.5% year-over-year to $0.88. Also, its net interest income rose 13.8% over the prior-year quarter to $14.16 billion.
Street expects BAC’s EPS and revenue for the quarter ending September 30, 2023, to increase 0.4% and 2.6% year-over-year to $0.81 and $25.15 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 15.4% to close the last trading session at $32.41.
BAC’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It is ranked first in the same industry. It has a C grade for Growth, Value, Stability, Sentiment, and Quality. Click here to see BAC’s rating for Momentum.
Wells Fargo & Company (WFC)
WFC, a diversified financial services company, provides banking, investment, mortgage, and consumer and commercial finance products and services in the United States and internationally. It operates through four segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management.
WFC’s total revenue for the second quarter ended June 30, 2023, increased 20.5% year-over-year to $20.53 billion. Its net income rose 57.2% year-over-year to $4.94 billion. Its EPS came in at $1.25, representing an increase of 66.7% year-over-year. Its ROE came in at 11.4%, compared to 7.2% in the prior-year quarter. Also, its net interest income rose 29% year-over-year to $13.16 billion.
For the quarter ending September 30, 2023, WFC’s revenue is expected to increase 2.7% year-over-year to $20.03 billion. Its EPS for the same quarter is expected to decline 5.4% year-over-year to $1.23. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the three months, the stock has gained 17.7% to close the last trading session at $46.44.
It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It has a C grade for Growth, Value, Momentum, Stability, and Quality. It is ranked #2 in the Money Center Banks industry. Get WFC’s rating for Sentiment, here.
Citigroup Inc. (C)
C provides various financial products and services to consumers, corporations, governments, and institutions in North America, Latin America, Asia, Europe, the Middle East, and Africa. It operates through three segments: Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), and Legacy Franchises.
C’s total revenues for the second quarter ended June 30, 2023, decreased 1% year-over-year to $19.44 billion. Its net income declined 36% year-over-year to $2.92 billion. Moreover, its EPS came in at $1.33, representing a decline of 39% year-over-year. On the other hand, its net interest income rose 16% year-over-year to $13.90 billion.
Analysts expect C’s revenue for the quarter ending September 30, 2023, to increase 4.3% year-over-year to $19.31 million. Its EPS for the same quarter is expected to decline 20.8% year-over-year to $1.29. The stock has gained 5% year-to-date to close the last trading session at $47.49.
C’s POWR Ratings are consistent with an uncertain outlook. It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It has a C grade for Growth, Stability, Sentiment, and Quality. It is ranked #4 in the same industry. For additional ratings of C for Value and Momentum, click here.
What To Do Next?
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JPM shares were trading at $157.69 per share on Thursday afternoon, down $0.07 (-0.04%). Year-to-date, JPM has gained 20.21%, versus a 20.78% rise in the benchmark S&P 500 index during the same period.
About the Author: AbhishekBhuyan
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