Jim Cramer ranks first-quarter earnings from 6 major U.S. banks. Our portfolio stocks fared well

Published Sat, Apr 20 20242:00 PM EDT

Wall Street's biggest banks finished reporting first-quarter earnings this week. Overall, their results were positive. Jim Cramer ranks them. The "pecking order" for the majors, according to Jim, were (1) Morgan Stanley, (2) Goldman Sachs , (3) Wells Fargo, (4) Citigroup , (5) Bank of America and (6) JPMorgan Chase. Investment banking and fee-based income were among the tailwinds. Execution issues and falling short of elevated expectations were among the headwinds. Here's a quick wrap of the numbers, along with our take on how Club holdings Morgan Stanley and Wells Fargo were able to stand out from the pack. 1. Morgan Stanley Revenue rose 4% year over year to $15.14 billion, beating expectations of $14.41 billion, according to data compiled by LSEG. Earnings per share (EPS) surged 19% in Q1 to $2.02, exceeding estimates of $1.66. Morgan Stanley on Tuesday posted better-than-expected first-quarter revenue and EPS. It was a rebound quarter, highlighted by strength in fee-based income streams. Wealth management (WM) posted its record revenue. investment banking (IB) experienced strong year-over-year growth as long-dormant initial public offerings (IPOs) and mergers and acquisitions (M & A) activity picked up. In recent years, management has been reducing its reliance on IB as economic uncertainty weighed on the deal-making environment. "It's been shifting away from traditional riskier investment banking activity and embracing more of a wealth [and] asset management business," Jim said this week . "I like that model. I'm glad [we] own this one." Why we own it We like Morgan Stanley for the rebound taking place in IPO and M & A activity along with growth in wealth management, which provides more durable fee-based revenues. We also view the bank's excess capital as supportive of further shareholder returns via buybacks and dividends while also providing for additional investments in growth. Competitors : Goldman Sachs Weight in Club portfolio : 4.03% Most recent buy : Oct. 18, 2023 Initiated : July 12, 2021 During Morgan Stanley's post-earnings call, CEO Ted Pick also addressed recent media reports about a regulatory probe into how the company screens clients for its wealth management division. Pick, who took over as CEO at the start of the year, said the inquiry would not weigh on the firm's overall financial health. Jim described the update as the "cherry on top" of an already solid quarterly report. Pick needed to deliver this quarter after the bank's lackluster release in January, and he did just that. MS YTD mountain Morgan Stanley (MS) year-to-date performance To be sure, Morgan Stanley has tested our patience this year. The stock was already sliding into January's Q4 print. Management's comments at the time that wealth management was far from hitting its previously issued 30% operating margin goal sent shares down another 4%. It took the stock until late March to get back to its 2024 high close from Jan. 2 around $94 per share. Shares were 1% higher Friday, closing above $91 apiece. Morgan Stanley's first-quarter performance gave us renewed optimism and faith that the firm will hit its long-term financial targets. 2. Goldman Sachs Revenue increased 16% year-over-year at $14.21 billion versus the $12.92 billion analysts' consensus estimate from LSEG. Earnings jumped 28% year-over-year to $11.58 per share, compared to the EPS estimate of $8.56. Morgan Stanley rival Goldman Sachs on Monday posted better-than-expected results , with investment banking fueling its highest EPS number since 2021. The asset and wealth management division also saw record quarterly management fees of $2.45 billion. GS YTD mountain Goldman Sachs (GS) year-to-date performance "Goldman is practically printing money here," said Jim, who spent part of his Wall Street career prior to becoming a financial journalist at the venerable bank. "We are witnessing a return of capital markets activity and that should be very good for [investment banking] numbers." Jim was also pleased to see that Goldman has gotten rid of smaller lending businesses, and returned to its roots as an advisor to the ultra-wealthy. 3. Wells Fargo Total revenue for the first quarter increased less than 1% year-over-year to $20.86 billion, surpassing analysts' estimates of $20.2 billion, LSEG data showed. Adjusted EPS came in at $1.26, above Wall Street's consensus EPS estimate of $1.11. Wells Fargo posted top- and bottom-line beats on April 12, which was the unofficial start of this year's first-quarter earnings season. Results were highlighted by a step-up in capital returns to shareholders. Management repurchased $6.1 billion worth of stock in the first quarter compared to $2.4 billion in Q4. EPS of $1.26 did exclude a 6-cent negative impact from an FDIC special assessment for the rescue of regional banks after last year's failure of Silicon Valley Bank. This special assessment charge was a 40-cent per share headwind in the fourth quarter of 2023. Either way, earnings were a beat. "Talk about a vote of confidence," Jim said, referring to the boost in buybacks. The stock on Friday jumped more than 3% to nearly $61 per share, revisiting highs not seen since late 2017. Share hit all-time highs above $66 each back in January 2018. WFC YTD mountain Wells Fargo (WFC) year-to-date performance On Wells Fargo's Q1 earnings call, CEO Charlie Scharf said, "We're beginning to see early signs of share and fee growth, which will be important as we diversify our revenues and reduce net interest income as a percentage of revenue." The bank has been focused on decreasing its reliance on interest-based revenue like net interest income (NII), concentrating instead on growing fee-based revenue. NII is the difference between the money a bank makes from loans and what it pays customers for their deposits. Jim said the Club strongly supports this move. He added fees are a great form of annuity and they reduce volatility because the bank isn't as reliant on interest rate dynamics. Why we own it We bought Wells Fargo as a turnaround story under CEO Charlie Scharf. He's been making progress cleaning up the bank's act and fixing its previously bloated cost structure after a series of misdeeds before his tenure. Scharf has also been working to get the Fed's $1.95 trillion asset cap lifted and to boost Wells Fargo's fee-generating revenue streams. Competitors : Bank of America and Citigroup Weight in Club portfolio : 4.76% Most recent buy : Feb. 24, 2022 Initiated : Jan. 8, 2021 The quarter showed us that Wells Fargo remains on track to have its Federal Reserve-imposed asset cap lifted — a huge part of our investment thesis. "It was a solid, if unspectacular, quarter from Wells. But you know what, in the banking business unspectacular is fine," Jim said. "Scharf and his team did exactly what they needed to." As a result, the Club boosted its price target on the stock to $62 per share from $60. We maintained our 2 rating on shares, in recognition of the bank's strong rally that began in late 2023. 4. Citigroup Revenue for the first quarter fell 2% to $21.10 billion but still exceeded analysts' estimates of $20.4 billion, according to data compiled by LSEG. Adjusted EPS came in at $1.86, surpassing estimates of $1.23. Citigroup's revenue beat was driven by investment banking growth, particularly a surge in equity issuance and IPOs. IB revenue jumped 35% to $903 million in the quarter. Profit fell 27% year over year due to higher expenses and credit costs. The drop in overall revenue reflected Citi's sale of an overseas business last year. C YTD mountain Citigroup (C) year-to-date performance Citigroup had a decent quarter, Jim said. He described the bank as a work in progress under CEO Jane Fraser's sweeping overhaul rather than a firm with substantial growth prospects that give it an edge over peers. "This is a conundrum. Wall Street didn't like it," Jim said, citing the stock's decline since the April 12 release. "I'm gonna position myself as on the fence." With all the major bank shares higher Friday, Citi mounted a three-session winning streak following its post-earnings decline of three straight sessions. 5. Bank of America Revenue for the quarter came in at $25.98 billion, compared to analyst expectations of $25.46 billion, according to LSEG data. Adjusted EPS was 83 cents, beating the LSEG consensus estimate of 76 cents. Bank of America's quarterly numbers on Tuesday were boosted by stronger-than-expected interest income, along with a rebound in investment banking. Jim said BofA just didn't shine versus the other major banks, and on earnings day Wall Street agreed, sending the stock down 3.5%. But since then, shares have been on a three-session winning streak. BAC YTD mountain Bank of America (BAC) year-to-date performance While acknowledging results were decent, Jim said he expected more given Bank of America's huge deposit base. The comparisons are hard, he added, because in other industries these kinds of numbers would be fine. 6. JPMorgan Chase Revenue was recorded at $42.55 billion, compared to $41.85 billion expected, LSEG calculations indicated. Earnings came in at $4.44 per share, versus analysts' estimates of $4.11 per share. Rounding out the six major banks was JPMorgan, which released quarterly earnings on April 12, on the same day as Wells Fargo and Citigroup. Better-than-expected trading revenue and credit costs helped JPMorgan beat on the top and bottom lines. However, shares sank nearly 6.5% on earnings day. Investors appeared disappointed by the firm's guidance on interest income for 2024. JPM YTD mountain JPMorgan (JPM) year-to-date performance "It didn't help that CEO Jamie Dimon was so cautious in his comments, but mainly I think the stock had simply run too much over the quarter," Jim said. "Throw in the ugly market that day and you have a recipe for a selloff even though the numbers were just fine." (Jim Cramer's Charitable Trust is long MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.

Reuters

Wall Street's biggest banks finished reporting first-quarter earnings this week. Overall, their results were positive. Jim Cramer ranks them.