Although sometimes it may not seem to be true, the global economy continues its steady recovery from the devastating effects of the recent financial crisis. In the United States, the labor and housing markets are starting to heal and finally return to more normal states.
This has obviously been great news for America’s biggest banks, whose profits and share prices have risen from the ashes along with the broader economy.
In the wake of second-quarter results from banking giants Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc (NYSE:C), what’s an investor to do with bank stocks right now?
A trio of stellar reports
Thankfully for investors, banks have returned to steady profitability. This has been met with a sigh of relief among bank stock investors, who watched in horror as their companies went to the brink of insolvency, and back, in 2008.
Those days seem like an eternity ago, especially if you go by the company’s earnings reports in recent quarters. Over the past week, the market has digested second-quarter earnings results from each of these banks, which have contained almost nothing but good news for investors.
JPMorgan and Wells Fargo & Co (NYSE:WFC) kicked off the bank earnings parade on the same day, and they each shined alongside their respective results. JPMorgan reported 14% higher revenue and stellar 32% growth in earnings per share. Wells Fargo & Co (NYSE:WFC), meanwhile, generated record quarterly earnings per share of $0.98, up 20% from the previous year.
Then, on July 15, it was Citigroup Inc (NYSE:C)’s turn, and the bank did not disappoint. Citigroup racked up 11% revenue growth and 41% diluted earnings per share growth, year over year.
Moreover, not only are these banks back to strong growth, their balance sheets continue to recover. Banks have done a commendable job repairing their books in the wake of the financial crisis, and that trend continued in the second quarter.
JPMorgan improved its return on equity by two percentage points, to 17% from 15% the year before. In addition, management noted that net charge-offs remained near historic lows in the credit card business and are now less than half the level seen last year in the bank’s real estate portfolios.
Wells Fargo, meanwhile, managed to increase its return on average assets by 14 basis points and its return on equity by 116 basis points versus the same quarter one year ago. Moreover, loan quality continues to improve, as the bank lowered its net charge-offs by $1 billion during the quarter.
Margins of safety remain
Even after such impressive runs in share prices of many of the nation’s biggest banks, there are still solid margins of safety embedded in these stocks that should comfort wary investors.