In yesterday's analysis, we delved into the Q1 results of the major money center banks, comparing their financial performances to their industry counterparts to gauge the sector's health amid a fluctuating economic climate. Building on this comparative approach, today's article will focus on a granular examination of each institution—dissecting their stock charts and evaluating the investment landscape for individual names. We aim to provide investors with detailed insights, from market trends and stock trajectories to strategic assessments, to inform their investment decisions in these financial behemoths.
J.P. Morgan (JPM)$JPM(JPM)
J.P. Morgan Chase & Co. (JPM) surpassed both top and bottom-line expectations with earnings per share (EPS) of $4.44 on adjusted revenues of $42.55 billion, against the expected $41.64 billion. Despite these strong results, JPM shares fell by 4% due to the market's reaction to the bank's updated Net Interest Income (NII) forecast, which, although raised, did not meet the heightened market expectations influenced by recent inflation data and anticipations of higher rates. JPM's total loans were $1.31 trillion and deposits stood at $2.43 trillion, both slightly missing estimates. The bank also set aside $1.88 billion for credit losses, significantly less than the anticipated $2.78 billion, reflecting a more favorable credit environment. While net income declined by 15% to $9.3 billion due to the FDIC special assessment, other financial metrics like return on equity and tangible common equity were strong at 17% and 21%, respectively. Noninterest expenses surged to $24.5 billion, primarily driven by the special FDIC assessment and increased compensation costs. Looking forward, JPM expects FY2024 NII around $90 billion and adjusted expenses to be approximately $91 billion, highlighting ongoing adaptations to dynamic market conditions. CEO Jamie Dimon pointed out the economic uncertainties ahead, stressing the importance of preparedness for various potential scenarios.
Our Thoughts: This is simply the best bank in the market as it is led by CEO Jamie Dimon who is, hands down, the best in the business. JPMs acquisition of First Republic is yet another reason why investors view it as the best in the business as it has allowed JPM to move to the head of the class in revenue growth (sans Goldman), return on equity, and loan growth. Its Fortress Balance Sheet suggests it is well positioned if the economy goes south and delinquencies pick up. Of course, all these accolades are well know which is why it trades at a premium to peers with a Book to Share of 1.73x. The stock has pulled back from the $200 level and is trying to settle around the $180 area. We would like to see this slip back to the $170-175 area before taking a long position. This is the name to won for those with a long term investment horizon but upside may be limited given its rich valuation.
Goldman Sachs (GS) $GS(GS)
Goldman Sachs (GS) shares surged 4% following the release of its Q1 results. It surpassed almost all financial metrics, boosting the stock above the $400 threshold. The firm reported a substantial increase in net revenues to $14.21 billion and net earnings of $4.13 billion, translating to a diluted EPS of $11.58—a significant rise from previous quarters. The strong performance was underpinned by a 14.8% return on average common shareholders' equity and a 15.9% return on average tangible common shareholders' equity, both exceeding expectations. Key revenue drivers included the Global Banking & Markets segment, which generated $9.73 billion, fueled by notable gains in investment banking fees, and FICC and Equities segments. Despite a rise in operating expenses to $8.66 billion, due to increased compensation and benefits among other factors, the firm's efficiency ratio improved, indicating a healthier cost structure. Goldman Sachs' robust quarter was further evidenced by improved revenue across all segments and proactive management of credit losses and expenses, setting a positive tone for its financial trajectory in the upcoming quarters.
Our Thoughts: It was nice to see the IB giant finally post a good quarter. This has not been your Daddys Goldman the past couple of years after fumbling a transition from a pure IB to a traditional bank. It has also been outclassed by peer Morgan Stanley the past few years. However, it is showing some signs of turning things around and it is once again producing stellar results in its trading unit. Perhaps most importantly, the Capital markets business is showing signs of life. This is one bank that would benefit if we were to see Trump win the 2024 election as it would mark the removal of Lina Kahn as head of the FTC and spark a renaissance in the M&A department. It is a lot cheaper than MS (PB 1.28x compared to 1.61x) and sets up as the best swing play heading into the elections. The 50-sma ($394) sets up as a key support level. Our preference would be to see a flush below this area which is quickly reversed. This would lead us into buying the name.
Morgan Stanley (MS)
Morgan Stanley (MS) surpassed expectations with an EPS of $2.02 and revenues rising 4.3% year-over-year to $15.14 billion, amid scrutiny from federal investigations into its customer vetting practices in the Wealth Management division. This scrutiny caused a significant stock sell-off prior to the report, testing the 200-day moving average. The firm's performance was bolstered by substantial growth in net new assets, reaching $7 trillion across Wealth and Investment Management. Notably, Institutional Securities reported revenues of $7.0 billion, with Investment Banking up by 16%, despite a drop in Advisory revenues due to fewer completed M&A transactions. Additionally, Equity underwriting and Fixed income underwriting revenues saw increases from IPOs and bond issuances. The Wealth Management segment also showed growth with revenues of $6.9 billion and net new assets totaling $95 billion. Investment Management revenues were up at $1.4 billion. Moreover, a decrease in the provision for credit losses reflected an improved macroeconomic outlook. Morgan Stanley's integrated firm model contributed to a strong return on tangible equity of 19.7% and an efficient expense ratio of 71%, showcasing the company's resilient performance and promising outlook despite external pressures.
Our Thoughts: This is simply too rich for our blood. The bank was an incredible performer when its Global Wealth management business rose to prominence. However, now it faces regulatory scrutiny around its vetting process for customers. It is difficult to see how this plays out but, given the current geopolitical situation, this could be a tenuous position for MS and there could be the potential for embarrassing findings. Given how expensive it is- its PB trails only JPM- we would prefer to put money to work in GS. A pullback into the $70s would put it back on our radar.
Wells Fargo (WFC) $WFC(WFC)
Wells Fargo (WFC) reported a strong first quarter in 2024, exceeding consensus estimates with net income of $1.20 per share and total revenues rising slightly to $20.86 billion, despite a challenging interest rate environment that led to a reaffirmed forecast for lower Net Interest Income (NII) for the year. This conservative outlook initially caused the stock to drop from $56 to $53, although it later rebounded above $56. The bank saw an 8% drop in NII due to higher funding costs and customer shifts to higher-yielding products, countered by gains in noninterest income, which surged 17% from improved venture capital results, higher investment banking fees, and increased asset-based fees. Despite higher operating losses and FDIC assessments, noninterest expenses were up by 5%, mitigated slightly by efficiency measures. Wells Fargo's management, led by CEO Charlie Scharf, remains focused on diversifying and enhancing the bank's financial health, reflected in solid returns on assets and equity at 0.97% and 10.5%, respectively.
Our Thoughts: Wells has come a long way from when it was in regulatory purgatory for what seemed in perpetuity. This is one of the reasons why we are nervous about MS. WFC and BAC results have closely mirrored each other, which makes a choice between the two a coin flip. We do like the look of the long-term chart for WFC as it has been in tight consolidation since its early 2024 breakout. Our concern would be if we saw economic growth falter which would raise questions around the industry. This is not a WFC-specific issue of course as the group would get hit. Our preference would be to allow WFC to slip back to the $53 area.
Citigroup Inc. $C(C)
Citigroup Inc. (C) Q1 results surpassed both top and bottom line expectations with an EPS of $1.58 against a forecasted $1.18, and revenues slightly declining by 1.6% year-over-year to $21.10 billion, yet still outperforming the consensus of $20.46 billion. Despite completing a significant reorganization that reduced headcount by 7,000, the stock reacted tepidly, hovering around its 20-day moving average of $61.10. The bank's investment banking revenue was notably strong at $903 million, surpassing estimates of $776.9 million. Citigroup also improved its return metrics, with a return on average equity of 6.6% and a return on average tangible common equity of 7.6%. Operating expenses were reported at $14.20 billion, and the company managed a lower-than-expected total cost of credit at $2.37 billion. Despite these positive results, Citigroup reaffirmed its conservative full-year 2025 revenue forecast of $80-81 billion, below consensus expectations, and maintained its medium-term targets, indicating steady future growth but cautioning investors about potential challenges ahead. This mixed outlook reflects both Citigroup's current strengths and the uncertainties in its broader strategic execution and market conditions.
Our Thoughts: This is the cheapest name in the group and for good reason as it has lagged peers since the Great Financial Crisis. It is going under a massive transformation under new CEO Jane Fraser. She has moved to reduce headcount by 7,000. The bank reaffirmed its expense outlook for 2024 which is an important element. This has the most exposure to International with approximately 51% of revenues coming from overseas. This can be viewed as positive or negative, depending on your global views. The cheap valuation has led investors into the name but bears continue to point to sloppy results and the lowest Return on Equity on the street as a reason to stay on the sidelines. It remains to be seen if Fraser can turn around the business. This carries the biggest risk/reward in the group so treat the investment accordingly. A hold of the 200-day moving average ($55) would be very attractive.
Bank of America (BAC) $BAC(BAC)
Bank of America (BAC) concluded the earnings season for major money center banks with a strong performance, surpassing both top and bottom-line expectations. Shares stayed above the 50-day SMA at $35.40 before the report, hinting at stable market support. The bank recorded $14.19 billion in net interest income and $6.7 billion in net income, or $0.76 per diluted share, showing a slight decline from the previous year but outperforming adjusted expectations with $7.2 billion in net income, translating to $0.832 per share. The wealth and investment management segment also exceeded forecasts with $5.59 billion in revenue. Trading revenues were robust, particularly in equity trading and fixed income, currencies, and commodities (FICC), both exceeding estimates. Despite a $1.32 billion provision for credit losses reflecting a cautious approach to credit quality, the bank's overall revenue saw a minor decline due to decreased consumer unit revenues and higher deposit costs. Nonetheless, the bank demonstrated strong capital returns, distributing $4.4 billion to shareholders, and showing growth in book value and tangible book value per share. While the bank faces challenges, including potential exposure to risky sectors like commercial real estate, its emphasis on credit quality and risk management positions it to navigate future market conditions effectively.
Our Thoughts: If Jamie Dimon is the best CEO in the business than BACs Brian Moynihan is running a close second. He has done a tremendous job at turning this bank around following the Great Financial crisis. BAC has the highest correlation to interest rates which means its NII and NIM benefit the most when interest rates rise. However, it also carries a hefty amount of treasuries under its balance sheet which means it has to deal with paper losses when treasuries are under selling pressure. These paper losses can create a significant headwind, especially if we see rising concerns around U.S. debt. The BAC chart is stunningly like C as it is coming in to test its 200-weekly ($34.35). If it more expensive on a Price to Book valuation compared to C but the two trade at the same Forward P/E. We would prefer to stay in the safety of BAC compared to WFC or C as our trust in Moynihan is greater.