Wells Fargo is up, JPMorgan is down: Bank stocks are turning in 2022

Shares of Wells Fargo & Company fell last week along with the broader market, but they’re still up 12% for the year. Given its large base of US deposits and loans, the bank is well positioned to benefit from a rise in US interest rates. Analysts at KBW, which rates the stock outperform, recently raised their price target to $67, citing stronger-than-expected growth in net interest income. Wells Fargo closed Friday at $53.67.

Unlike many of its peers, Wells Fargo is also cutting costs. The bank said in its fourth-quarter earnings announcement this month that it reduced both total expenses and head count by 7% in 2021.

But other banks with larger Wall Street operations reported higher spending, mainly because they had to pay employees more after great investment banking and trading results. This is affecting the share prices. JPMorgan Chase & Co. said during its earnings remarks this month that it won’t meet its long-term target return this year and probably next.

“This issue is certain to us: front-loaded expenses for less fixed back-ended benefits,” Wells Fargo analysts wrote in a research note downgrading shares of JPMorgan.

Shares of JPMorgan are down 8.4% so far this year and shares of Goldman Sachs Group Inc. are down 10%. Both banks reported record 2021 results, but investors are focused on costs. Overall spending rose 7% at JPMorgan and 10% at Goldman.

The unusual price action was followed by some positive results as well. Shares of Morgan Stanley rose 4.3% on Thursday, a day after posting record 2021 results. This made it the best-performing stock in the S&P 500 that day, falling 1.1% during the session.

It is unusual for a large bank to outperform every member of that index. According to Dow Jones market data, this has happened only once since the beginning of 2021. Wells Fargo accelerated the index on July 14.

Big banks were the top performers last year. The deal-making boom accelerated their results. Market volatility boosted business profits, and a heated housing market made mortgage loans more profitable than ever. At the same time, the doomsdays that banks prepared for in the early days of the pandemic never materialized, leading to additional one-time gains.

But the picture is unclear now that the largest US banks have reported fourth-quarter earnings results, revealing an unexpected downturn in business and rising costs.

So far in 2022, the KBW Nasdaq Bank Index is up 0.1%, much better than the broader markets, which are down. The bank index had jumped 35 per cent last year.

This story has been published without modification to the text from a wire agency feed