The path to global disinflation is hitting a few speed bumps, hinting that higher interest rates might stick around longer than we'd like. This scenario, while challenging for some, could benefit top U.S. banks like JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC), and The PNC Financial Services Group, Inc. (PNC).
These banking giants recently reported better-than-expected quarterly results thanks to a resilient economy, robust consumer spending, and a surge in Wall Street activities.
America’s biggest banks have demonstrated their resilience, powering everything from Main Street to Wall Street. The U.S. M&A market saw 551 large deals worth at least $100 million each, totaling $758 billion through May, marking an 18.5% year-over-year increase, according to consulting firm EY. This surge in mergers and acquisitions has created significant windfalls for banks advising on these transactions.
Meanwhile, the International Monetary Fund (IMF) has warned that stubborn inflation might keep interest rates high for longer than expected, increasing fiscal and financial risks globally. Persistently high prices for services and escalating trade tensions are propping up inflation and raising the prospect that interest rates will remain elevated for some time.
This caution is evident among central banks, including the Federal Reserve, which is hesitant to cut rates until it is more confident that inflation is moving sustainably toward its 2% target.
Despite these concerns, the IMF still expects major central banks to reduce borrowing costs in the latter half of the year, with one cut anticipated by the Fed before the year's end. Global inflation is forecasted to slow to 5.9% this year from 6.7% last year, although stubbornly high service prices, driven by increased wages, are slowing progress.
If the Fed cuts rates, net interest income could get a near-term boost as deposit costs reset faster than some loan rates. However, banks will need to issue enough new loans to compensate for the lower interest rates they'll receive.
Considering these factors, let’s evaluate the three Money Center Banks picks, beginning with the third choice.
Stock #3: The PNC Financial Services Group, Inc. (PNC)
PNC is a diverse financial services company in the United States. It operates through three segments: Retail Banking; Corporate & Institutional Banking; and Asset Management Group.
On July 2, the company’s Board of Directors declared a quarterly dividend on the common stock of $1.60 per share, an increase of 3% from the previous dividend of $1.55. The dividend will be payable Aug. 5, 2024, to shareholders of record at the close of business July 15, 2024.
PNC pays an annual distribution of $6.40 per share, translating to a yield of 3.62% on the prevailing share price. Its four-year average dividend yield is 3.58%. Also, the company’s dividend payouts have grown at a CAGR of 9.9% over the past three years. It has a record of 13 years of consecutive dividend growth.
On May 6, the company announced a partnership with The TCW Group, Inc. to provide private credit solutions to middle-market companies. This collaboration builds on 15 years of joint efforts, combining TCW's direct lending experience with PNC's middle market lending network.
The joint strategy will target senior secured cash-flow and asset-based loans for middle-market firms. Backed by PNC and Nippon Life, the platform aims to secure $2.5 billion in investor equity within its first year, with investments set to begin in Fall 2024.
PNC’s revenue for the second quarter, which ended June 30, 2024, increased 2.2% year-over-year to $5.41 billion. Its net income attributable to common shareholders grew marginally from the year-ago value to $1.36 billion and $3.39 per share. Also, the company maintained a strong capital position with a Common Equity Tier 1 (CET1) capital ratio of 10.2% compared to 9.5% in the prior year’s quarter.
Analysts expect PNC’s revenue for the third quarter (ending September 2024) to increase 2.5% year-over-year to $5.36 billion, while its EPS is expected to fall by 10.2% from the previous year to $3.23. Nevertheless, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has surged 49.8%, closing the last trading session at $176.98. It has also gained 40.7% over the past year.
PNC’s stance is apparent in its POWR Ratings. The stock has a grade B for Momentum and Stability. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It is ranked #4 among the nine stocks in the Money Center Banks industry. Click here to access additional PNC ratings (Growth, Value, Sentiment, and Quality).
Stock #2: JPMorgan Chase & Co. (JPM)
JPM is a global financial services company that operates through four segments: Consumer & Community Banking (CCB); Corporate & Investment Bank (CIB); Commercial Banking (CB); and Asset & Wealth Management (AWM).
On June 28, JPM announced that its Board of Directors plans to raise the quarterly common stock dividend to $1.25 per share for the third quarter of 2024, up from the current $1.15 per share. This marks the second dividend increase this year, reflecting the company's robust financial performance and ongoing investments.
JPM pays an annual dividend of $4.60 per share, which translates to a yield of 2.15% on the current share price. Its four-year average yield is 2.76%. The company’s dividend payouts have grown at a CAGR of 6.9% over the past three years. JPM has raised its dividends for nine consecutive years.
In addition to the dividend increase, JPM's Board has approved a new common share repurchase program valued at $30 billion, effective July 1, 2024. This program enhances the company’s ability to return excess capital to shareholders over time flexibly.
JPM’s net revenue for the fiscal second quarter that ended June 30, 2024, increased 21.5% year-over-year to $50.20 billion. Its net noninterest income grew by 4.4% from the prior year’s quarter to $22.75 billion. The company’s net income rose 25.4% from the year-ago value to $18.15 billion, while its earnings per share stood at $6.12, up 28.8% year-over-year.
In addition, its return on tangible common equity (ROTCE) for the quarter increased to 28% from 25% recorded in the prior year. As of June 30, 2024, JPM’s cash and due from banks amounted to $22.75 billion, up 4.6% year-over-year.
Street expects JPM’s revenue for the third quarter (ending September 2024) to increase 4.4% year-over-year to $41.63 billion. However, the current quarter's EPS estimate of $3.99 indicates a 7.8% decline from the prior year. Nonetheless, the company surpassed consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 42.6%, closing the last trading session at $213.62.
JPM’s POWR Ratings reflect this prospect. The stock has a B grade for Momentum, Stability, and Sentiment. It is ranked #2 out of nine stocks in the same industry.
In addition to the POWR Ratings highlighted above, one can access JPM’s Growth, Value, and Quality ratings here.
Stock #1: Wells Fargo & Company (WFC)
WFC provides diversified banking, investment, mortgage, and consumer and commercial finance products and services in the U.S. and internationally. The company operates through four segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management.
In March, the company announced plans to introduce new electronic Foreign Exchange (eFX) pricing capabilities in Singapore in the second half of 2024, with support from the Monetary Authority of Singapore.
The initiative aims to provide clients with a lower latency trading environment and enhance efficiency in the Foreign Exchange markets of Singapore and the wider APAC region. By connecting with more clients and enabling faster, more efficient pricing and execution of eFX transactions, WFC seeks to promote greater market efficiency.
For the fiscal second quarter that ended June 30, 2024, WFC’s total revenue increased marginally year-over-year to $20.69 billion. On the contrary, its net income decreased marginally from the year-ago value to $4.91 billion, while its earnings per share stood at $1.33, down 6.4% year-over-year. Meanwhile, the company’s ROTCE for the quarter remained flat year-over-year at 13.7%.
Analysts expect WFC’s EPS and revenue for the current year (ending December 2024) to decrease by 3% and 0.5% from the previous year to $5.09 and 82.17 billion, respectively. However, its EPS and revenue for the next year are expected to register a year-over-year growth of 7.5% and 1.1%, respectively.
Shares of WFC have gained 44.6% over the past nine months and 22.4% year-to-date to close the last trading session at $60.24.
WFC’s prospects are reflected in its POWR Ratings. The stock has a B grade for Momentum and is ranked first within the same industry.
Click here to see the additional ratings for WFC (Growth, Value, Stability, Sentiment, and Quality).
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JPM shares were trading at $216.75 per share on Wednesday afternoon, up $3.13 (+1.47%). Year-to-date, JPM has gained 29.67%, versus a 17.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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