In this article, we take a look at 10 most profitable bank stocks to invest in.
Many big banks did not do well during the financial crisis in 2008 and 2009.
Given home values decreased substantially in 2008, some financial institutions that made riskier loans lost a lot of money. Considering the economy slowed substantially in 2008, even more financial institutions lost a lot of money as well. With the slowing economy, leading investment bank Lehman Brothers eventually went bankrupt, and the government had to eventually bail out some of the big banks.
As a result of the financial crisis, some big banks were labeled as systemically important, meaning their failure could lead to instability in the financial system.
Although shareholders of systematically important institutions could still lose all their money if the institution failed, the government placed more regulation on those systemically important institutions and as a result, many of the big banks had to have more capital than before that weighed on their profitability.
Nevertheless, big banks have done well over the last ten years given the growing U.S. economy even though there has been some dips due to market declines or the pandemic. Many U.S. banks have also benefited from higher interest rates. Many banks find it easier to make more in net interest margin when interest rates are a little higher than when they are near zero.
Although interest rates have risen substantially in 2022, many big bank stocks did not do well, however.
One reason is that the substantial rise in interest rates also led to a considerable increase in U.S. Treasury yields. As a result of substantially higher Treasury yields, a lot of capital moved from the equity market into the U.S. Treasury market and many leading equity stock valuations decreased as a result.
Another reason is that the substantial rise in interest rates also increased the chance of a recession. If there is a recession, bank loan losses could increase and this could lead to lower than expected profits or even losses that might send their stocks lower.
While inflation has shown signs of having potentially peaked last year, many expect the Federal Reserve to raise interest rates further. If it raises rates too much further, the odds of a recession or an economic slowdown that might send bank stocks lower will increase.
Given some companies might underperform or the economy could worsen, leading bank stocks might not achieve their potential. As a result, it could be a good idea for long term investors to own a well diversified portfolio of leading stocks across many different sectors.
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Methodology
For our list of 10 Most Profitable Bank Stocks To Invest In, we took the 10 largest banks by market capitalization in the United States and ranked them based on the amount of TTM net income they had according to YCharts.
Because we used YCharts data, the net income data might not be adjusted earnings.
10 Most Profitable Bank Stocks To Invest In
10. M&T Bank Corporation (NYSE:MTB)
Net Income (TTM) as of December 31, 2022: $1.992 billion
M&T Bank Corporation (NYSE:MTB) is one of the larger regional banks in the United States with total assets of $198 billion, deposits of $164 billion, and and loans of $128 billion at the end of Q3 2022. For the twelve months ended December 31, 2022, M&T Bank Corporation (NYSE:MTB) had net income of $1.992 billion, ranking #10 on our list of 10 Most Profitable Bank Stocks To Invest In. Shares trade for around 8.63 times forward earnings estimates and M&T Bank Corporation (NYSE:MTB) has growth potential if it maintains its market share in the American banking sector.
Alongside Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM), M&T Bank Corporation (NYSE:MTB) was one of the most profitable banks in America last year.
9. U.S. Bancorp (NYSE:USB)
Net Income (TTM) as of December 31, 2022: $5.825 billion
U.S. Bancorp (NYSE:USB) is a leading regional bank with full year net income of $5.825 billion in 2022, making it one of the more profitable regional banks in the United States. For the full year, U.S. Bancorp (NYSE:USB) realized return on average assets of 0.98%, return on average common equity of 12.6%, and return on tangible common equity of 17%. Furthermore, the bank completed the acquisition of MUFG Union Bank in 2022, which increased U.S. Bancorp (NYSE:USB)’s market share in California by 1 million consumers and 190,000 business banking customers. As a result of the purchase, management believes the transaction to be 8 to 9% accretive to 2023 EPS given increased scale, cost synergies and more.
8. PNC Financial Services Group, Inc. (NYSE:PNC)
Net Income (TTM) as of December 31, 2022: $6.041 billion
PNC Financial Services Group, Inc. (NYSE:PNC) is one of the largest regional banks in the United States that provides a wide range of lending products, specialized services for corporations and governments, as well as wealth management and asset management services. For full year 2022, PNC Financial Services Group, Inc. (NYSE:PNC) had net income of $6.041 billion, revenue growth of 10% year over year, average loan growth of 15% year over year, and return on common equity of 13.52%. PNC Financial Services Group, Inc. (NYSE:PNC)’s net interest margin also expanded significantly given the higher interest rates.
7. Truist Financial Corporation (NYSE:TFC)
Net Income (TTM) as of December 31, 2022: $6.26 billion
Truist Financial Corporation (NYSE:TFC) is a top 10 U.S. commercial bank that was formed from the merger of equals between BB&T and SunTrust in 2019. Given the resulting bank’s scale and earnings power, Truist Financial Corporation (NYSE:TFC) ranks #7 on our list of 10 Most Profitable Bank Stocks To Invest In given its net income of $6.26 billion in 2022 according to YCharts. According to Truist Financial Corporation (NYSE:TFC), net income available to common shareholders was $5.9 billion for full year 2022 and “adjusted net income available to common shareholders for the full year 2022, which excludes merger-related charges, incremental operating expenses related to the merger, and certain other items as detailed in our non-GAAP reconciliations was $6.6 billion compared to $7.5 billion for 2021.”
6. Morgan Stanley (NYSE:MS)
Net Income (TTM) as of December 31, 2022: $11.03 billion
Morgan Stanley (NYSE:MS) is a leading investment bank on Wall Street whose stock has recovered from the Great Recession in 2008 and 2009 when the stock fell below $20 per share given the Lehman Brothers bankruptcy and the economic uncertainty. In the last 10 years, shares of Morgan Stanley (NYSE:MS) have tripled as the bank has improved its core businesses. For the trailing twelve months as of December 31, 2022, Morgan Stanley (NYSE:MS) had net income of $11.03 billion, a return on equity of 11.2%, and return on tangible equity of 15.3%. Although shares could decline if there is a recession or economic slowdown in the near term, Morgan Stanley (NYSE:MS) has a strong business and EPS growth potential in the long term if it maintains its market share.
Like Morgan Stanley (NYSE:MS), Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM) were among the most profitable banks in America last year.
5. Goldman Sachs Group, Inc. (NYSE:GS)
Net Income (TTM) as of December 31, 2022: $11.26 billion
Goldman Sachs Group, Inc. (NYSE:GS) is regarded by many as the most prestigious investment bank in the world even if it isn’t one of the big four American banks. For the trailing twelve months ended December 31, 2022, Goldman Sachs Group, Inc. (NYSE:GS) had net income of $11.26 billion, ROE of 10.2%, and ROTE of 11%. Goldman Sachs Group, Inc. (NYSE:GS)’s book value per share rose 6.7% year over year to $303.55 and the company ranked #1 worldwide in announced and completed mergers and acquisitions. Although it like other stocks could decline in the near term if there is a recession or economic slowdown, Goldman Sachs Group, Inc. (NYSE:GS) has substantial normalized earnings power.
4. Wells Fargo & Company (NYSE:WFC)
Net Income (TTM) as of December 31, 2022: $13.18 billion
Wells Fargo & Company (NYSE:WFC) is one of the big four American banks with net income of $13.18 billion for 2022. In Q4, the company’s net income fell 50% to $2.86 billion given lower mortgage banking on fewer originations. Given substantially higher interest rates, however, Wells Fargo & Company (NYSE:WFC)’s net interest margin has increased from 2.16% in Q1 2022 to 2.39% in Q2 2022, 2.83% in Q3 2022, and 3.14% in Q4 2022. For 2023, Wells Fargo & Company (NYSE:WFC) believes its net interest income could be ~10% higher than the full year 2022 level.
3. Citigroup Inc. (NYSE:C)
Net Income (TTM) as of December 31, 2022: $14.84 billion
Citigroup Inc. (NYSE:C) is another of the big four American banks with substantial scale. For Q4, the company’s profit fell 21% year over year as it set aside money for credit losses in preparation for potentially weaker economic conditions. As a result, Citigroup Inc. (NYSE:C)’s Q4 net income was $2.5 billion versus the net income of $14.84 billion for all of 2022 according to YCharts. In the long term, Citigroup Inc. (NYSE:C) still has earnings growth potential if it maintains its market share.
2. Bank of America Corporation (NYSE:BAC)
Net Income (TTM) as of December 31, 2022: $27.53 billion
Bank of America Corporation (NYSE:BAC) was the second most profitable bank in the United States in 2022 with net income of $27.53 billion. Although the mortgage market has slowed given the higher interest rates, Bank of America Corporation (NYSE:BAC)’s net interest income has increased. For Q4, Bank of America Corporation (NYSE:BAC) CEO Brian Moynihan said, “The themes in the quarter have been consistent all year as organic growth and rates helped deliver the value of our deposit franchise. That coupled with expense management helped drive operating leverage for the sixth consecutive quarter.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Net Income (TTM) as of December 31, 2022: $37.68 billion
JPMorgan Chase & Co. (NYSE:JPM) was the most profitable bank in the United States with full year net income of $37.7 billion in 2022. For the fourth quarter, the bank had net income of $11 billion, $34.5 billion in revenue, and ROTCE of 20%. JPMorgan Chase & Co. (NYSE:JPM) book value was $90.29 per share, up 3% year over year and tangible book value per share was $73.12, up 2% year over year. JPMorgan Chase & Co. (NYSE:JPM) ranks #1 on our list of 10 Most Profitable Bank Stocks To Invest In.
Vltava Fund commented on JPMorgan Chase & Co. (NYSE:JPM) in a Q3 2022 investor letter,
We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.
JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008.
A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability.
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Disclosure: None. 10 Most Profitable Bank Stocks To Invest In is originally published on Insider Monkey.
