Benzinga - by Shanthi Rexaline, Benzinga Editor.
With big bank earnings now in the rearview mirror, CNCB Mad Money host and stock picker Jim Cramer on Wednesday weighed in on which of them impressed him the most.
What Happened: Cramer was impressed with the earnings reports of Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS). He added the name of Wells Fargo & Co. (NYSE:WFC) in the same breath.
Cramer premised his picks based on the fee income these banks generated rather than on the net interest income. Fees include income generated from equity and debt underwriting, as well as advisory and asset & wealth management fees. Net interest income, on the other hand, is the difference between the money the banking operation receives on the loans it extends and the money it owes to its depositors.
When you read through all the big bank quarters so far you like GS and MS so much because of the fees, not the net interest income. Same with Wells Fargo, which had a very good quarter. Big boost in fees— Jim Cramer (@jimcramer) April 17, 2024
Why It’s Important: The Fed funds rate, which is used as a benchmark to fix various interest rates, is now at a 22-year high of 5.25%-5.50%. This is positive for the net interest income of banks.
The net interest income’s health also hinges on the provisioning a company sets aside for credit losses.
For Goldman, which reported a stellar quarter, non-interest revenue rose 21% year-over-year and 26% quarter-over-quarter. Net interest income, meanwhile, was down 10% year-over-year and up 20% sequentially.
JPMorgan Chase & Co., Inc. (NYSE:JPM), which did not appease the Street with its earnings, did report a double beat. Much of the upside was from higher interest income, facilitated by higher rates and larger loan balances stemming from its First Republic Bank takeover.
After taking a dovish stance immediately after the March Federal Open Market Committee meeting, Jerome Powell has reverted to his hawkish stance. In a speech on Tuesday, he said the restrictive rates should persist as long as the inflation remained above the 2% upper ceiling set by the central bank.
The futures market, however, is pricing in a 67.3% possibility of a rate cut in the September meeting.
The iShares U.S. Financials ETF (NYSE:IYF) ended Tuesday’s session down 0.68% at $88.39, according to Benzinga Pro data.
Read Next: Financial Stocks Fall After Earnings, Major Banks Notch 4-Day Losing Streak: Regional Banks Hit Lowest Level Since Late 2023
Image Via Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.