Big banks are done reporting earnings. Here’s how our financial names performed against peers

Despite a murky macroeconomic environment and heightened fears around the health of the banking sector, the nation’s largest financial institutions all reported earnings beats for the third quarter. Some businesses performed better than others. However, none of them has been rewarded with higher stock prices — yet. As expected, money center banks like Wells Fargo (WFC) and JPMorgan (JPM) outperformed financials that lean more heavily on wealth management and investment banking such as Morgan Stanley (MS) and Goldman Sachs (GS). “A softer performance in investment banking was not a surprise, given the current dearth of mergers and acquisitions and a still-frozen market for initial public offerings,” Jeff Marks, CNBC Investing Club director of portfolio analysis, said after quarterly results from Morgan Stanley, which is one of the Club’s two bank holdings. Wells Fargo is the other. The third-quarter reporting season for major banks wrapped up this week. The banking sector is facing a myriad of obstacles right now, creating a difficult operating environment even for Wall Street’s most profitable firms. The fed funds overnight bank lending rate of 5.25%-5.5% is the highest in some 22 years. The Federal Reserve has increased the cost of borrowing 11 times since March 2022, with questions about whether one more rate hike is needed before year-end. The KBW Bank Index , a go-to stock index for the sector, has declined more than 27% since the start of the year. Wells Fargo’s decline of 2.5% in 2023 and Morgan Stanley’s 14% drop are relative outperformers. Morgan Stanley vs. Goldman Sachs MS YTD mountain Morgan Stanely YTD Morgan Stanley reported better-than-expected third-quarter results on Wednesday. For the three months ended Sept. 30, the company earned $1.38 per share on a 2% increase in revenue to $13.27 billion. The bank, however, reported weak results at its investment banking and wealth management units, sending shares down 6.8% on Wednesday and down another 2.6% on Thursday. The stock hit a 52-week low of $72.35 during Friday’s session but closed slightly higher. We think those headwinds will pass, so we bought Wednesday’s drop, picking up 75 more shares. On Friday, Marks said the Club is considering buying more future pullbacks. We’re content to be paid for our patience by an annual dividend yield of 4.6%. While investment banking has been downbeat for several quarters on fears of an economic downturn, management expressed optimism around this long-dormant part of its business. “The minute you see the Fed indicate they’ve stopped raising rates, the M & A and underwriting calendar will explode because there is enormous pent-up activity,” outgoing Morgan Stanley CEO James Gorman said Wednesday. The team also said that planned multiyear wealth management growth remains on plan. GS YTD mountain Goldman Sachs YTD As a point of comparison, outside our portfolio, Goldman Sachs on Tuesday also reported stronger-than-expected quarterly revenue and profits . Goldman, which is one of the most investment-banking-reliant firms in the sector, saw figures pale in comparison to what they once were. Third-quarter revenue dropped 20% year over year at Goldman’s asset and wealth management division. Goldman shares logged a three-session losing streak following earnings with a modest reprieve Friday. However, like Morgan Stanley, management at Goldman Sachs also forecasted improvements. “I also expect a continued recovery in both capital markets and strategic activity if conditions remain conducive. As the leader in M & A advisory and equity underwriting, a resurgence in activity will undoubtedly be a tailwind for Goldman Sachs,” CEO David Solomon said in the earnings release. Goldman Sachs’ asset and wealth management division saw Q3 revenue drop 20% year over year. Wells Fargo vs. JPMorgan WFC YTD mountain Wells Fargo (WFC) year-to-date performance On the money center side, Wells Fargo reported stellar quarterly results on Friday, Oct. 13, topping analysts’ expectations for both earnings and revenues. The stock soared 3% that day. It was up Monday and Tuesday before hitting a rough patch for the rest of the week. For the three months ended Sept. 30, the company delivered EPS of $1.39 on a 6.6% increase in Q3 revenue to $20.86 billion. Wells Fargo got a boost from better-than-expected net interest income and non-interest income, along with a decline in non-interest expenses. Expense control is a significant reason the Club favors Wells Fargo over some of the other majors. Management’s eye has been on improving efficiency for some time through cost-cutting via layoffs or optimizing certain parts of the bank’s business. Wells Fargo CFO Mike Santomassimo said in September that the firm may cut more jobs down the road on top of the roughly 40,000 jobs already slashed over the last three years. JPM YTD mountain JPMorgan Chase YTD Looking outside our portfolio for comparison, we saw JPMorgan Chase (JPM) also report solid results on Friday the 13th, beating expectations on third-quarter profit and revenue. Like Wells Fargo, the bank benefited from robust interest income, while costs for credit were lower than expected. However, CEO Jamie Dimon said the bank is “over-earning” on interest income and that its “below normal” credit costs will normalize over time. JPMorgan shares jumped 1.5% on Oct. 13 but then dropped every day this past week. (Jim Cramer’s Charitable Trust is long WFC, MS . See here for a full list of the stocks.) 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