Buy This, Not That: The Banks Are Not All Right

Shah Gilani|April 17, 2024

“The bank remains alert to significant, uncertain forces.”

Yikes.

So said JPMorgan CEO Jamie Dimon during the bank’s earnings call last Friday.

And that set the tone for this season’s earnings from banks.

Despite most of the big banks hitting or beating their numbers…

Their stocks have taken a hit.

Does that mean any are a “buy the dip” opportunity right now? Or is something more troubling going on?

I take a look at the six largest U.S. banks… dig into the numbers… and lay it all out.

See which of the big banks are a BUY… and which are NOT… in today’s Buy This, Not That video.

Click on the thumbnail below to watch.

 

Transcript

Hey, everybody. Shah Gilani here with your weekly BTNT, as in Buy This, Not That.

Going to hit the big banks today. Why?

Because earnings are out. So let’s take a look at how they did and whether they are a BUY or NOT.

Let’s start with the big boy, the MacDaddy, JPMorgan Chase (JPM). Looking at the stock, it’s midmorning here on Wednesday, about 9:45, so the market’s just been open a little while and it’s trying to rally off of pretty much kind of a rollover. Let’s see if it can do that.

But speaking of rolling over, JPMorgan Chase got absolutely hammered on its earnings, which, by the way, beat everywhere pretty much. So why’d it get hammered?

Because there’s cautiousness on the part of the bank, on the part of CEO Jamie Dimon.

The adjusted revenue beat was $42.55 billion versus a beaten-down estimate of $41.64 billion. Return on equity was 17%. Return on tangible equity was 20%.

Great numbers.

Core net interest income guidance for the whole year looked pretty good.

The problem with everything beating was Jamie Dimon’s talking about being worried that maybe they’ve seen the top of net interest income, and those margins might come down.

That worried a lot of folks, even though the numbers were great. And Dimon also commented, and I quote, “The bank remains alert to significant, uncertain forces.”

Yikes.

The stock got hammered and it rolled over, people. I’m looking at the stock now. It’s trading $182 and change this morning. Ugly rollover.

So, no, it’s not a BUY here.

I don’t like to buy stocks that, first of all, climb. I don’t like to chase stocks that are climbing really high, and I certainly don’t want to buy when they’ve rolled over.

On a correction, yes. But not as they rolled over and looks like they have maybe more to go, especially if the market, if the weight of the market, which, by the way, we’re not done, I don’t think, selling with interest rates rising, the banks are going to be under more pressure.

So, no, JPMorgan Chase, great bank, great franchise, fantastic. But, no, not now. It’s not a buy right now.

Again, it’s trading at $182 and change. I would look down around the 200-day or $160, you know, mid $165 range, somewhere in there a little bit above the 200-day if I were to pick some up.

And that’s going to have to be if the market firms up. Otherwise, these banks could continue to see some pressure, some selling, and prices could come down.

So much as I like JPMorgan Chase, you know what? If you rode it up, good for you. But it’s not a buy up here. It’s not a buy on this interim dip. If the market firms up and rates come down, we’ll revisit that.

Next up, because it’s a giant in its own right, is Bank of America (BAC).

Now, Bank of America saw an 18% drop in first quarter profit, but that didn’t matter because expectations had been knocked down.

So it still beat on a lot of different metrics. And as far as Bank of America goes, its stock rolled over. Okay? Trading right now at $35.18. It was up close to $40. It’s was up $38. It was trying to get to $40, but rolled over. Right now, it’s at $35, which doesn’t look or sound like it’s a lot lower. But if you look at the chart, it’s rolled over.

I don’t want to buy it here because I don’t think it’s done rolling over. Again, same story, weight of the market.

But, look, their performance in their wealth trust area was fabulous. Capital markets was really good. Investment banking was good. Trading was good.

But still, an 18% drop in first quarter profit. So, yeah, they did really well, and they beat on a lot of things because, again, expectations had been lowered by management, and analysts had knocked down certain expectations, certain numbers.

Sometimes when that happens, a lot of times when that happens, it’s easy for companies to beat on the metrics. And this is a situation that we’ve seen with the banks for the most part in this earning season so far. Well, it remains to be seen on some of the regionals, but as far as the big boys, a lot of beats didn’t help the stocks.

Bank of America rolled over. Trading at $35 now. I’m going to say the same thing, people, maybe the low $30s, maybe $30.

I’m not going to buy it as it’s rolling over here. Again, if the market firms up, it’s another story, but it’s had a great run. I don’t want to chase it, not now, especially with earnings out and it’s rolled over.

By the way, something frightening that no one’s really talking about… is that all these banks are sitting on massive losses on bond portfolios.

Bank of America? Loss on its books? Guess. No, you can’t.

$109 billion in unrealized losses on its bond portfolio.

Ouch. Alright. So another reason the stock rolled over is numbers like that are freaky.

So wait on Bank of America. It’s not a buy here, people.

Next up, we’re going to go to Wells Fargo (WFC). Now, Wells Fargo has done well, and it’s held up too. So as far as Wells Fargo goes, right now, Wells Fargo’s trading at $57 and change.

It’s up a little bit this morning. It’s had a nice run higher. It’s held up really well.

They had great increases in revenue. First quarter profit, however, still fell 7%. So it’s kind of a Bank of America story. Numbers were a good beat. But net interest income fell 8%.

That’s what people are worried about, net interest income falling.

Now, Wells Fargo held up, didn’t roll over the way Bank of America did or JPMorgan Chase did, but that’s a pretty scary fall, 8% fall in net interest income over the year ago period. That’s not a good sign. And that means that maybe we reach peak NIMs, but I don’t know because net interest margin, net interest income, same thing.

If rates go higher, then they can maybe do a little bit better. But at some point, we know they’re probably going to be coming down. And this is the worry that I have with some of the banks, especially the big banks that make huge amounts of loans and are sitting on losing bond portfolios.

So Wells Fargo is trading at $57. I wouldn’t buy it here. It’s just come up too high. I don’t want chase it higher. Again, if the other banks roll over, this one hasn’t rolled over. This one could see some the weight of the market pressure it.

So, you know, as much as I like Wells Fargo, and I’d say, you know what? Let it come down to the mid $50s, a little lower, and pick some up at $50.

Certainly, mid $40s is definitely a buy in there. But right now, I would not chase Wells Fargo up here. So the answer to that is NOT.

Next is Citi. Okay. Big Citi, trading at $57 and change. Symbol is C.

Stock was at $64 the other day. Just shy of $64. It’s trading at $57 now. Had an ugly rollover.

It’s up a little bit this morning about 1.5%, but that kind of a rollover, same thing as JPMorgan Chase, just doesn’t bode well.

We had great numbers. They beat on pretty much everything. They had great investment banking fees. They beat on revenue. They beat on net income, and still the stock rolled over.

So when you have all those beats, when you have good numbers and the stock rolls over, something’s wrong.

So, no, it’s not a buy.

As far as Citigroup, you know, again, $50 maybe? Maybe pick some up at $50. I would like to buy it on a nice dip, and I’m not going to chase it up here, and I don’t think you should either. So as far as Citi goes, NOT.

Now we’re going to go to Goldman Sachs. Goldman Sachs hit it out of the park. It really did.

Just great numbers from Goldman all across the board. I mean, really solid numbers from Goldman.

Goldman, no rollover in Goldman. Numbers were terrific for Goldman.

They made $699 million on debt underwriting in the first quarter. Wow. Absolutely fabulous run.

That’s up 40% from a year ago. Now, there’s been a lot of debt issuance, and so a lot of the investment banking fees, a lot of the underwriting fees have been really, shall we say, juicy. And Citi had good numbers. JPMorgan had good numbers on what they did in underwriting.

And everybody’s looking pretty good, but Goldman Sachs blew them all away because this is Goldman Sachs’ bread and butter. It’s not so much about net interest income for Goldman Sachs. It’s about deal making. It’s about trading, and they hit it out of the park there too.

So I like Goldman Sachs. It is a BUY. Would I chase it up here and buy it at the $400 and change range? No.

It’s trading at $406 right now. I’d still like to see it come down. I don’t know how much Goldman could come down. It may be $375 range somewhere down there.

I would pick some up, but I just don’t like chasing the stock even though it’s done really well. And I think Goldman can go higher. If I was going to buy any one of them, I would probably go with Goldman. But I just don’t like to chase it, but it looks pretty good.

And last but not least, Morgan Stanley (MS). Now, Morgan Stanley, is trading at $91 right now, up 2% on the day.

It got hammered on earnings. It just absolutely got hammered. If you look at the chart, this thing just fell off the cliff. It came right down to a great support level, and that was the opportunity to buy. Trading at $90, we call it $91 right now.

The $85 range is where you want to buy it. So you’re not too far off right now, but I wouldn’t chase it up here. I think it can come back down and test that $85. Would I buy it at $85? No. I’d want to see if it can hold that support. If it can’t hold that support, then I’d look to buy it lower. But I do want to buy it lower.

Again, here, not so sure what’s going on.

So that’s it for the banks. I know I’m not enthusiastic about the banks. So if you picked up on that, you’re right.

Why am I not enthusiastic on the banks?

Because the way that the market’s going to put pressure on these companies, on the banks, because the investors have already spoken for some of them like JPMorgan, like Citi, and Bank of America. They’re like, we’re not sure we want to be in these, and they’re going to take profits.

Well, the weight of the market pressures all stocks. It’s going to certainly press on the financials too, and the banks are going to have a problem there.

Now with rates rising, banks maybe have other problems besides net interest income, because maybe deal making will start to dry up if rates continue on their ascent with 5% in sight on the 10-year Treasury. That could be a problem for banks, too. So if rates go up, loan values are going to go down, portfolio holdings marked down, that’s what investors are worried about and should be worried about.

So as far as the banks go, I’d say sit on them, and let’s see what happens.

That’s it for this week. Catch you guys next week. Cheers.