With the major banks having released quarterly earnings, John Buckingham — a value-focused money manager and the editor of The Prudent Speculator — updates his recommendations in the sector.

Among the nation’s largest banks, JPMorgan Chase (JPM) and Citigroup (C) were both out with Q3 financial results that beat Street estimates.

A massive jump (15% vs Q2) in net interest income to $17.6 billion aided the beat for JPM despite a loss reserve build of $800 million versus a $2.1 billion release a year ago. A major portion of the provision came from commercial banking ($618 million vs. negative $363 million in Q3 2021).

Despite market volatility in the current year, asset/wealth management revenue grew a respective 5% and 6% in Q3 vs. a quarter and year ago. JPM remains a favored holding in many of our diversified portfolios, and management was upbeat regarding loan demand for the year ahead, even as several previously noted risks sit on the horizon.

We continue to like the multiple levers available to generate fee revenue in varying environments, and we maintain our fondness for Mr. Dimon, who is willing to take a long-term view, spending on enhancing various capabilities, even if there is limited near-term payoff.

The shares trade for less than 9 times the consensus next 12-month EPS estimate and the dividend yield is 3.6%. Our Target Price for JPM has been bumped up to $184.

Citigroup earned $1.50 per share (vs. $1.43 estimate). The firm is focused on improving returns in its markets business. We continue to think that strategic action plans laid out and thus far taken under offer reasons for optimism. Reframing its global scale/connectivity as a competitive advantage versus a source of complexity should help improve the turnaround sentiment with time.

Of course, our time horizon is far longer than most, so we are willing to remain patient, as long as we see continued progress, especially as we think that there is significant appreciation available from the stock.

The shares trade at a deep discount to competitors, changing hands at just 54% of tangible book value and for less than 7 times next 12-month adjusted EPS projections, while the dividend yield is now 4.7%. Our Target Price for C is currently $90.

Bank of America (BAC) — the nation’s second largest bank by assets — earned an adjusted $0.81 per share in the quarter vs. the $0.78 expected by the Street.Trading revenue was also better-than-expected, including beats within both fixed-income and equities trading.

Wealth management revenue was resilient despite significant market volatility in the quarter, and modest expense growth added to the bank’s streak of improving operating leverage.

BAC remains a favored holding in many of our diversified portfolios as we continue to appreciate the bank’s propensity to stretch its technological capability, with increasing digitization of transactions driving continued efficiencies over time.

Impressively, the CEO said that 48% of third quarter sales were digital, a 36% year-over-year increase, even as the bank fully reopened its financial centers. The multi-year consolidation in price does not mesh with the nearly 50% improvement for EPS since 2017. The dividend yield is 2.5% and our Target Price has been raised to $56 as the forward P/E ratio is below 10.

Goldman Sachs (GS) reported revenue for the 3rd quarter that was down 12% year-over-year. After a blockbuster 2021, we have repeatedly expressed this year that our expectations for 2022 earnings were tempered. Of course, the current consensus EPS estimate of $34.47 is sensational, especially as it is significantly above the pre-pandemic levels, while the 2023 EPS projection now stands at $38.16.

We continue to find the stock attractive, liking the healthy balance sheet even as capital requirements edge higher, and management has changed the direction of its strategic objections amid economic uncertainty.

Dealmaking is down for now, but ought to come back into vogue before too long as corporations adjust to the new normal of higher interest rates. While the 15% slide for shares year-to-date is less than the overall market, the forward P/E ratio is a modest 9. With a dividend yield of 3.1%, our Target Price is now $450.

Shares of Morgan Stanley (MS) continued their 2022 struggles; the financial services giant turned in adjusted Q2 EPS of $1.53, which came in a bit better than the consensus analyst estimate of $1.51. Revenue of $12.99 billion trailed the $13.24 billion projection, caused by weakness in the Investment Management segment.

While the quarter wasn’t what some investors were looking for, we were encouraged to see the firm gain Wealth Management assets in the current environment and we believe that in the intermediate-term, areas like Investment Banking and Investment Management should bounce back.

We continue to like the diversifying acquisitions of Eaton Vance and E*Trade, which we believe give MS greater scale in tech, a deeper product and service base, and self-directed investors to complement advisor-assisted Wealth-Management clients.

Morgan Stanley repurchased $2.6 billion of its shares during the quarter, part of its outstanding $20 billion buyback plan. Shares trade for less than 11 times next 12-month EPS estimates and offer a dividend yield of 4.1%. Our Target Price for MS is now $116.

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