JPMorgan, Wells Fargo Earnings Give Nod to Owning These Banks
Strong investment banking and equity market activity confirm our reasoning for keeping these two other financial giants in the Pro Portfolio.
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This morning JPMorgan Chase JPM delivered quarterly results that topped market expectations for both the top and bottom lines. Wells Fargo WFC, meanwhile, reported an EPS beat on inline revenue for the quarter. Neither bank is in the Pro Portfolio. But when we pore through both reports -- as well as recent investment-banking news -- we find further reason for owning Morgan Stanley MS and Bank of America BAC in the Pro Portfolio.
To find out why, we must look, in part, to fees and market revenue for these two big banks. JPMorgan’s Investment banking fees shot up 31% year over year and its market revenue rose up 8%, led by equity market revenue soaring 27%. Investment banking fees at Wells Fargo jumped 37% year over year to $672 million. Well Fargo's increase is larger percentage-wise, but far smaller as part of total business share when compared with JPMorgan, BofA, and Morgan Stanley. But, still, the growth captures this year’s rebound.
We also should look out to big merger and acquisition and initial public offering deals, that involve investment bankers. We already got thesis-confirming comments from Jefferies JEF and its investment banking pipeline. KinderCare KLC priced its initial public offering last week and we are waiting for the pricing for similar transactions with Ceribell (with the new ticker CBLL) and Upstream Bio (with the ticker UPB). Continued positive reception by the market for new issues bodes well for more of the large IPO backlog to come to market, fueling further gains in investment banking activity. The near-record stock market offers companies stock as transaction currency, but we believe that as the Fed moves further down the rate-cut curve, lower interest rates will lead to further M&A activity.
With both JPMorgan and Wells holding earnings calls this morning, we’ll be listening for more comments about the tone of their investment banking and asset/wealth management businesses. We’ll also be interested in their outlook for lending activity, including mortgages and other markets as well as the puts and takes behind their net interest income guidance. What we learn will sharpen expectations for Bank of America’s earnings on Tuesday and Morgan Stanley’s the following day.
At the time of publication, TheStreet Pro Portfolio was long BAC and MS.
