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The year 2023 started on a promising note as the Federal Reserve raised the interest rates to a 15-year high range of 4.25-4.50% in the previous year to control ‘sticky’ inflation. The higher interest rate regime propelled the banks’ top-line growth in 2022.
However, as higher interest rates hurt bond values, many banks with notable portfolios of bond investments were affected. Hence, as the year progressed, the fallout from the central bank’s ultra-aggressive monetary policy started emerging. Moreover, increasing funding costs, potential recession, asset-liability mismatches, high exposure to fixed-rate mortgage loans, commercial real estate loans and uninsured deposits on the balance sheet resulted in the regional banking crisis in early March with the fall of three large banks, Silicon Valley Bank, Signature Bank and First Republic Bank. These lenders were part of the S&P 500 Index.
Such challenges turned investors bearish toward the banking stocks. As the ultra-aggressive pace of rate hikes turned counterproductive for banks that generally perform well in the higher interest rate regime, the Fed pausing the interest rate hike at the June FOMC meeting helped regain some confidence in bank stocks.
Now, at the end of the two-day FOMC meeting earlier this month, the Fed signaled an end to rate hikes this cycle. In fact, the central bank is now expected to cut rates thrice in 2024. With this, bank stocks navigated choppy waters and investors gradually turned optimistic toward banks.
So far this year, the S&P Banks Select Industry Index has risen 3.5%, lagging the S&P 500 Index’s rally of 25.1%. Today, we will discuss the three best-performing S&P 500 banks, JPMorgan Chase & Co. (JPM - Free Report) , Wells Fargo & Company (WFC - Free Report) and Bank of New York Mellon Corporation (BK - Free Report) or BNY Mellon.
Before we proceed to check out these three top-performing banks in detail, let’s see how they have fared. The chart below shows the price performance of these banks in the year-to-date period.
Image Source: Zacks Investment Research
JPMorgan Chase: This banking behemoth tapped an opportunity to strengthen its balance sheet amid turbulence in the banking space. JPMorgan acquired First Republic Bank, the third largest bank to collapse in 2023, for $10.6 billion in an FDIC-assisted deal.
Following the transaction, JPMorgan’s balance sheet has swelled to almost $3.9 trillion. The deal resulted in increased penetration within the high-net-worth clients and added prime locations in wealthy markets.
While high interest rates hindered net interest income (NII) for numerous banks on higher funding costs, First Republic Bank’s acquisition drove robust improvement in JPM’s NII. In the nine months ended Sep 30, 2023, the company’s NII jumped 40% to $65.2 billion.
Given the encouraging momentum, JPMorgan kept on raising its 2023 NII outlook. It expects 2023 NII to be roughly $88.5 billion, up from the prior guidance of $87 billion. The increase is driven by higher rates and slower-than-expected deposit repricing across both consumers and wholesale.
Coming to investment banking (IB) activities, despite the muted deal-making scenario, JPMorgan continued to rank #1 for global IB fees with an 8.6% wallet share in the first nine months of 2023. The company is seeing encouraging signs in the IB business, which is likely to rebound and grow at a decent pace once the macroeconomic and geopolitical ambiguity is over. Improvement in the macro scenario, along with a healthy IB pipeline and active merger & acquisition (M&A) market, will likely facilitate IB fee growth.
Also, JPMorgan Chase’s efforts to embrace new technologies and make investments in fintech companies are positive.
Lastly, the company increased its dividend by 5% to $1.05 per share in 2023 and announced its intention to repurchase shares worth $12 billion this year. This, too, is likely to have driven investors’ confidence in the stock.
The stock has gained 26.9% this year. The company’s earnings are projected to witness a year-over-year rise of 38.4% this year on 22.9% growth in revenues. It currently has a Zacks Rank of 3 (Hold).
Wells Fargo: Operating with an asset cap that is limiting balance-sheet growth, WFC has made impressive efforts in regard to expense management. Efforts such as streamlining organizational structure, closing branches, and reducing headcount undertaken from third-quarter 2020 have been aiding expense reduction. With this, it witnessed a declining trend in expenses in the first nine months of 2023.
Similar to JPM, the fourth-biggest U.S. bank revised its NII outlook upward. It now expects 2023 NII to increase about 16% compared with the previous forecast of 14% growth.
Also, Wells Fargo’s capital deployment activities continue to impress shareholders. Following the clearance of the 2023 stress test, the company increased its dividend by 16.7% to 35 cents per share in July. Also, on Jul 25, 2023, its board of directors authorized a new share repurchase program worth $30 billion. As of the third-quarter end, it had $29 billion authorization remaining.
So far this year, shares of WFC have gained 19.8%. The earnings estimate for WFC for 2023 has witnessed a downward revision of 2.3% over the past week to $5.08. Nonetheless, it indicates year-over-year growth of 61.8%. Also, revenues are projected to be up 11.7% in 2023. The company currently has a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BNY Mellon: Higher interest rates are expected to support BNY Mellon’s top-line growth in the near term. The company’s net interest revenues (NIR) and margins witnessed an uptrend in the first nine months of 2023. Encouragingly, for 2023, management expects NIR to be up 20% year over year.
Also, global expansion initiatives, robust assets under management balance, business restructuring efforts, solid balance sheet and digitization of operations have aided performance.
BNY Mellon’s capital distribution activities seem impressive. Following the clearance of the 2023 stress test, the company hiked its quarterly cash dividend by 14% to 42 cents per share. As of Sep 30, 2023, nearly $2.85 billion worth of buyback authorization remained under its $5 billion share repurchase plan. Given its decent earnings strength and a solid liquidity position, the company will likely be able to sustain efficient capital distributions. This has also boosted investors’ confidence in the stock.
The stock has gained 14.7% this year. The company’s earnings are projected to witness a year-over-year rise of 6.1% this year on 6.7% growth in revenues. It currently has a Zacks Rank of 3.
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3 Best Performing S&P 500 Bank Stocks of 2023
The year 2023 started on a promising note as the Federal Reserve raised the interest rates to a 15-year high range of 4.25-4.50% in the previous year to control ‘sticky’ inflation. The higher interest rate regime propelled the banks’ top-line growth in 2022.
However, as higher interest rates hurt bond values, many banks with notable portfolios of bond investments were affected. Hence, as the year progressed, the fallout from the central bank’s ultra-aggressive monetary policy started emerging. Moreover, increasing funding costs, potential recession, asset-liability mismatches, high exposure to fixed-rate mortgage loans, commercial real estate loans and uninsured deposits on the balance sheet resulted in the regional banking crisis in early March with the fall of three large banks, Silicon Valley Bank, Signature Bank and First Republic Bank. These lenders were part of the S&P 500 Index.
Such challenges turned investors bearish toward the banking stocks. As the ultra-aggressive pace of rate hikes turned counterproductive for banks that generally perform well in the higher interest rate regime, the Fed pausing the interest rate hike at the June FOMC meeting helped regain some confidence in bank stocks.
Now, at the end of the two-day FOMC meeting earlier this month, the Fed signaled an end to rate hikes this cycle. In fact, the central bank is now expected to cut rates thrice in 2024. With this, bank stocks navigated choppy waters and investors gradually turned optimistic toward banks.
So far this year, the S&P Banks Select Industry Index has risen 3.5%, lagging the S&P 500 Index’s rally of 25.1%. Today, we will discuss the three best-performing S&P 500 banks, JPMorgan Chase & Co. (JPM - Free Report) , Wells Fargo & Company (WFC - Free Report) and Bank of New York Mellon Corporation (BK - Free Report) or BNY Mellon.
Before we proceed to check out these three top-performing banks in detail, let’s see how they have fared. The chart below shows the price performance of these banks in the year-to-date period.
Image Source: Zacks Investment Research
JPMorgan Chase: This banking behemoth tapped an opportunity to strengthen its balance sheet amid turbulence in the banking space. JPMorgan acquired First Republic Bank, the third largest bank to collapse in 2023, for $10.6 billion in an FDIC-assisted deal.
Following the transaction, JPMorgan’s balance sheet has swelled to almost $3.9 trillion. The deal resulted in increased penetration within the high-net-worth clients and added prime locations in wealthy markets.
While high interest rates hindered net interest income (NII) for numerous banks on higher funding costs, First Republic Bank’s acquisition drove robust improvement in JPM’s NII. In the nine months ended Sep 30, 2023, the company’s NII jumped 40% to $65.2 billion.
Given the encouraging momentum, JPMorgan kept on raising its 2023 NII outlook. It expects 2023 NII to be roughly $88.5 billion, up from the prior guidance of $87 billion. The increase is driven by higher rates and slower-than-expected deposit repricing across both consumers and wholesale.
Coming to investment banking (IB) activities, despite the muted deal-making scenario, JPMorgan continued to rank #1 for global IB fees with an 8.6% wallet share in the first nine months of 2023. The company is seeing encouraging signs in the IB business, which is likely to rebound and grow at a decent pace once the macroeconomic and geopolitical ambiguity is over. Improvement in the macro scenario, along with a healthy IB pipeline and active merger & acquisition (M&A) market, will likely facilitate IB fee growth.
Also, JPMorgan Chase’s efforts to embrace new technologies and make investments in fintech companies are positive.
Lastly, the company increased its dividend by 5% to $1.05 per share in 2023 and announced its intention to repurchase shares worth $12 billion this year. This, too, is likely to have driven investors’ confidence in the stock.
The stock has gained 26.9% this year. The company’s earnings are projected to witness a year-over-year rise of 38.4% this year on 22.9% growth in revenues. It currently has a Zacks Rank of 3 (Hold).
Wells Fargo: Operating with an asset cap that is limiting balance-sheet growth, WFC has made impressive efforts in regard to expense management. Efforts such as streamlining organizational structure, closing branches, and reducing headcount undertaken from third-quarter 2020 have been aiding expense reduction. With this, it witnessed a declining trend in expenses in the first nine months of 2023.
Similar to JPM, the fourth-biggest U.S. bank revised its NII outlook upward. It now expects 2023 NII to increase about 16% compared with the previous forecast of 14% growth.
Also, Wells Fargo’s capital deployment activities continue to impress shareholders. Following the clearance of the 2023 stress test, the company increased its dividend by 16.7% to 35 cents per share in July. Also, on Jul 25, 2023, its board of directors authorized a new share repurchase program worth $30 billion. As of the third-quarter end, it had $29 billion authorization remaining.
So far this year, shares of WFC have gained 19.8%. The earnings estimate for WFC for 2023 has witnessed a downward revision of 2.3% over the past week to $5.08. Nonetheless, it indicates year-over-year growth of 61.8%. Also, revenues are projected to be up 11.7% in 2023. The company currently has a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BNY Mellon: Higher interest rates are expected to support BNY Mellon’s top-line growth in the near term. The company’s net interest revenues (NIR) and margins witnessed an uptrend in the first nine months of 2023. Encouragingly, for 2023, management expects NIR to be up 20% year over year.
Also, global expansion initiatives, robust assets under management balance, business restructuring efforts, solid balance sheet and digitization of operations have aided performance.
BNY Mellon’s capital distribution activities seem impressive. Following the clearance of the 2023 stress test, the company hiked its quarterly cash dividend by 14% to 42 cents per share. As of Sep 30, 2023, nearly $2.85 billion worth of buyback authorization remained under its $5 billion share repurchase plan. Given its decent earnings strength and a solid liquidity position, the company will likely be able to sustain efficient capital distributions. This has also boosted investors’ confidence in the stock.
The stock has gained 14.7% this year. The company’s earnings are projected to witness a year-over-year rise of 6.1% this year on 6.7% growth in revenues. It currently has a Zacks Rank of 3.