Despite a gloomy macroeconomic environment and increasing fears about the health of the banking sector, all of the country’s largest financial institutions reported profit beats for the third quarter. Some companies performed better than others. However, none of them have yet been rewarded with higher share prices. As expected, financial institutions such as Wells Fargo (WFC) and JPMorgan (JPM) outperformed financial stocks that rely more heavily on asset management and investment banking, such as Morgan Stanley (MS) and Goldman Sachs (GS). “Given the current lack of mergers and acquisitions and a still-frozen IPO market, weaker performance in investment banking was no surprise,” Jeff Marks, director of portfolio analysis at CNBC Investing Club, said after quarterly results from Morgan Stanley, one of the two bank holdings of the club. Wells Fargo is the other. The third quarter reporting season for the major banks came to an end this week. The banking sector is currently facing a variety of obstacles, creating a difficult business environment for even Wall Street’s most profitable companies. The Fed funds rate of 5.25% to 5.5% is the highest in about 22 years. The Federal Reserve has increased borrowing costs 11-fold since March 2022, raising questions about whether another rate hike is needed before the end of the year. The KBW Bank Index, a key stock index for the industry, has fallen more than 27% since the beginning of the year. Wells Fargo’s 2.5% decline in 2023 and Morgan Stanley’s 14% decline are relative outperformers. Morgan Stanley vs. Goldman Sachs MS YTD Berg Morgan Stanely YTD Morgan Stanley reported better-than-expected third-quarter results on Wednesday. In the three months ended Sept. 30, the company earned $1.38 per share on revenue rising 2% to $13.27 billion. However, the bank reported weak results in its investment banking and wealth management divisions, sending shares down 6.8% on Wednesday and another 2.6% on Thursday. The stock hit a 52-week low of $72.35 during Friday’s session but closed slightly higher. We expect these headwinds to pass, so we bought Wednesday’s dip and acquired 75 additional stocks. On Friday, Marks said the club was considering purchasing additional pullbacks in the future. We will be rewarded for our patience with an annual dividend yield of 4.6%. While investment banking has been performing poorly for several quarters due to fears of an economic downturn, management expressed optimism about this long-dormant part of its business. “As soon as you see the Fed announce that it has stopped raising rates, the M&A and underwriting calendar is going to explode because there is tremendous pent-up activity,” outgoing Morgan Stanley CEO James Gorman said on Wednesday. The team also said planned multi-year asset management growth remains on track. GS YTD Berg Goldman Sachs YTD For comparison: Outside our portfolio, Goldman Sachs also reported stronger-than-expected quarterly sales and profits on Tuesday. At Goldman, one of the industry’s most heavily dependent on investment banking, the numbers paled in comparison to before. In the third quarter, revenue at Goldman’s asset and wealth management division fell 20% year over year. Goldman shares snapped a three-session losing streak after earnings with a modest breather on Friday. However, management at Goldman Sachs as well as Morgan Stanley predicted improvements. “I also expect continued recovery in both capital markets and strategic activity if conditions remain favorable. As a market leader in M&A advisory and equity underwriting, a revival of activity will undoubtedly be a tailwind for Goldman Sachs,” CEO David Solomon said in the earnings release. Goldman Sachs’ wealth and asset management division reported a 20% year-over-year decline in third-quarter revenue. Wells Fargo vs. JPMorgan WFC Year-to-Date YTD Performance of Wells Fargo (WFC) On the financial center side, Wells Fargo reported stellar quarterly results on Friday, October 13, beating analysts’ expectations for both earnings and revenue. The stock rose 3% on the day. It rose on Monday and Tuesday before hitting a rough patch for the rest of the week. For the three months ended Sept. 30, the company posted earnings per share of $1.39 on third-quarter revenue rising 6.6% to $20.86 billion. Wells Fargo benefited from better-than-expected net interest income and noninterest income, as well as a decline in noninterest expense. Cost control is a big reason the club prefers Wells Fargo over some other majors. Management’s focus for some time has been on improving efficiency by reducing costs through layoffs or optimizing certain areas of the bank’s business. Wells Fargo CFO Mike Santomassimo said in September that the company may cut more jobs in the future, in addition to the roughly 40,000 jobs it has already cut over the past three years. JPM YTD Mountain JPMorgan Chase YTD Looking outside our portfolio for comparison, we see that JPMorgan Chase (JPM) also reported solid results on Friday the 13th, beating expectations for third quarter earnings and revenue. Like Wells Fargo, the bank benefited from robust interest income while borrowing costs were lower than expected. However, CEO Jamie Dimon said the bank was earning “too much” in interest income and that its “below-average” borrowing costs would normalize over time. JPMorgan shares rose 1.5% on Oct. 13 but then fell every day last week. (Jim Cramer’s Charitable Trust is called WFC, MS. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.

A combination photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.


Despite a gloomy macroeconomic environment and increasing fears about the health of the banking sector, all of the country’s largest financial institutions reported profit beats for the third quarter.

Some companies performed better than others. However, none of them have yet been rewarded with higher share prices.

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