The S&P 500 Index has demonstrated solid performance in 2024, rallying 26.2% year to date.
The primary drivers of the steady uptrend in the index were optimism regarding the Federal Reserve’s interest rate cut trajectory, robust economic growth and a solid rebound in the capital market business. Donald Trump’s re-election and expected rate cuts for 2025 and 2026 have raised hope for a better future performance.
Amid the S&P 500’s impressive rally, the banking sector has gained significant attention, with the S&P 500 Banks Industry Group Index rising 18.7% in 2024. Notably, several banks within the S&P 500 have outperformed the broader index, including The Goldman Sachs Group, Inc. GS, The Bank of New York Mellon Corporation BK, Wells Fargo & Company WFC, JPMorgan Chase & Co. JPM and M&T Bank Corporation MTB.
Here’s how these five banks performed in the year-to-date period.
One of the key reasons for bullish investor sentiments was the Federal Reserve’s decision to cut interest rates. The Fed started cutting interest rates in September 2024 and lowered interest rates by 100 basis points, with the latest cut on Dec.18, 2024. Currently, the Fed fund rates are 4.25-4.5%.
Also, the pace of global mergers and acquisitions (M&A) gained momentum in 2024, leading banks to experience significant increases in advisory fees and deal-making revenues, bolstering their financial performances. According to Dealogic, global M&A’s total deal value has increased 15% so far this year to $3.45 trillion, recovering from a decade-low in 2023.
Several banks have increased their capital distribution activities after the clearance of the 2024 stress test. This boosted investors’ sentiment, reinforcing confidence in the banking sector’s stability.
The banking sector seems to be in a good spot for the future.
Donald Trump’s re-election and expected expansionary economic policies, including reduced capital requirements, deregulation and relaxed fiscal policies, are expected to support the banking sector in the upcoming period.
The Federal Reserve expects to lower the interest rates twice in 2025 and two additional times in 2026, bringing the rate to 3.4% by the end of 2026. These rate cuts are likely to benefit banks by lowering funding costs, which would support their net interest income (NII) and net interest margin growth. Lower rates will likely increase the loan demand, boosting banks’ lending activity.
However, banks are not fully out of the woods. The exposure to commercial real estate (CRE) loans is concerning. The major rating agencies, including S&P Global Ratings, Fitch and Moody’s, have continued to flag exposure to CRE loans as a key headwind for the industry. The slump in commercial property values will likely hurt the banking sector.
Goldman: GS is a leading global financial holding company providing Investment Banking (IB), securities, investment management and consumer banking services to a diversified client base.
Goldman Sachs benefited from the Federal Reserve’s interest rate cuts throughout 2024. The bank’s net interest income (NII) reached $6.47 billion in the first nine months of 2024, reflecting a 29% increase from the same period in 2023. This growth reversed the trend seen in 2023 when NII declined to $6.35 billion from $7.28 billion in 2022 and $6.47 billion in 2021.
GS is sharpening its focus on its core strengths in IB and trading while scaling back its consumer banking footprint. The pivot aligns with the company’s efforts to concentrate on areas wherein it has consistently demonstrated strong performance. Although IB revenues declined in 2022 and 2023 due to muted global M&A deal value and volumes, the same increased 24% in the first nine months of 2024 as global M&A bounced back, with remarkable growth in deal value and volume.
The company is hopeful that private equity-led deals will bounce back in 2025. Leveraging its leadership position, extensive operational scale and exceptional talent, the company aims to bolster its core businesses and drive growth in areas with a competitive edge.
Goldman has a solid balance sheet position. As of Sept. 30, 2024, cash and cash equivalents were $155 billion. As of the same date, total unsecured debt (comprising long-term and short-term borrowings) was $325 billion. Thus, the company’s decent cash levels aid its capital distribution activities. In July 2024, the company’s board of directors approved a 9.1% increase in the common stock dividend to $3 per share. In February 2023, it announced a share repurchase program, authorizing repurchases of up to $30 billion of common stock with no expiration date. In the first nine months of 2024, Goldman repurchased approximately $6 billion worth of its common shares.
The Zacks Consensus Estimate for the company’s earnings per share for 2024 and 2025 is pegged at $37.05 and $43.04, respectively. The Zacks Consensus Estimate for 2024 and 2025 earnings implies increases of 62% and 16.17%, respectively.
GS currently carries a Zacks Rank #3 (Hold).
Bank of New York Mellon or BNY Mellon: Headquartered in New York, the company is poised for growth, driven by the Fed rate cuts and strategic initiatives.
BK’s financial performance reflects a pattern of recovery and growth. Although its NII and NIM declined in 2020 and 2021, both rebounded thereafter. NII recorded a five-year (ended 2023) CAGR of 3.8%. Likewise, NIM improved to 1.25% in 2023 from 0.97% in 2022, 0.68% in 2021 and 0.84% in 2020. Although both metrics declined in the first nine months of 2024, with the Fed rate cut, NII and NIM are likely to improve over time as funding costs stabilize.
BK has been trying to gain a foothold in foreign markets and is undertaking several growth initiatives (including launching new services, digitizing operations and making strategic buyouts). In the first nine months of 2024, non-U.S. revenues constituted 35% of total revenues. The company’s international revenues are expected to continue improving as the demand for personalized services rises across the globe.
BNY Mellon has a solid balance sheet. As of Sept. 30, 2024, the company had a total debt of $52.7 billion, significantly lower than its cash and due from banks, and interest-bearing deposits of $108.5 billion. Thus, given its decent earnings strength and a solid liquidity position, BK will likely be able to continue meeting debt obligations in the near term, even if the economic situation worsens.
The company hiked its quarterly cash dividend 12% to 47 cents per share in June 2024. Additionally, in April 2024, it announced a share repurchase program worth $6 billion. As of Sept. 30, 2024, $6.08 billion worth of authorization was available. Driven by a strong capital position and earnings strength, the company will likely be able to sustain efficient capital distributions.
The Zacks Consensus Estimate for BNY Mellon’s earnings per share for 2024 and 2025 is pegged at $5.84 and $6.61, respectively. The Zacks Consensus Estimate for 2024 and 2025 earnings implies year-over-year increases of 15.64% and 13.15%, respectively.
BK currently carries a Zacks Rank #2 (Buy).
Wells Fargo: One of the largest banks in the country, WFC is gradually resolving regulatory issues plaguing it since the sales scandal in 2016. Though it remains under close supervision of the regulatory authorities and has an asset cap in place, the recent developments show that the lender is on the right path. At the Goldman Sachs 2024 U.S. Financial Services Conference on Dec. 11, Wells Fargo’s CEO Charlie Scharf expressed confidence in the bank’s progress to fix compliance problems following its years-long fake account scandal, detailing its efforts to implement risk controls.
Last month, Reuters reported that WFC was in the final stages of meeting its regulatory requirements to remove the $1.95-trillion asset cap. This asset cap was imposed in 2018 following the revelation of its fake account scandal. Per the report, the asset cap could be removed in the first half of 2025, provided that the bank resolves its risk management and compliance issues. However, the decision to lift the restriction would require voting from the Federal Reserve’s board of governors. Given that loans are among a bank’s largest assets, lifting the asset cap will mark a turning point for Wells Fargo. This will allow the bank to offer loans without restrictions, supporting its top-line expansion and long-term growth.
Over the past three years, Wells Fargo has experienced consistent revenue growth, seeing a CAGR of 3.6% on an NII rise. Total revenues increased in the first nine months of 2024 from the same period in 2023. WFC has benefitted from the Fed’s interest rate cuts in 2024, bolstering its performance. This momentum was reflected in a 10% increase in NII in the first nine months of 2024, contributing to the continued expansion of overall revenues.
Wells Fargo rewards its shareholders handsomely. In July 2024, the company announced a dividend hike of 14% to 40 cents per share from its prior payout.
It also has a share repurchase program in place. In July 2023, the company’s board of directors authorized a share repurchase program worth $30 billion. As of Sept. 30, 2024, the company had the authority to repurchase up to $11.3 billion of common stock.
WFC has a strong liquidity position, with a liquidity coverage ratio of 127% as of Sept. 30, 2024, which has exceeded its regulatory minimum of 100%. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $185.5 billion as of the same date.
Given its robust capital position and ample liquidity, the company’s capital deployment activities seem sustainable.
The Zacks Consensus Estimate for the company’s earnings per share for 2024 and 2025 is pegged at $5.28 and $5.49, respectively. The Zacks Consensus Estimate for 2024 implies a year-over-year decline of 2.76%. However, the metric is expected to rebound and grow 4.02% in 2025.
WFC currently carries a Zacks Rank #2.
JPMorgan: JPM is expected to keep benefiting from loan growth, acquisitions, business-diversification efforts, strong liquidity position and initiatives to expand the branch network in new markets.
JPM’s revenues have witnessed a 9.6% CAGR over the past three years, with the uptrend continuing in the first nine months of 2024. The rise was primarily driven by solid NII growth. The largest U.S. bank’s NII rose 3% in the first nine months of 2024 from the same period in 2023. With interest rate cuts in place, this metric is expected to show a stronger performance in 2025.
JPMorgan is regaining momentum in its IB division. Although JPM’s IB fees declined in 2022 and 2023, the metric increased 33% in the first nine months of 2024, driven by a strong capital market performance. A favorable interest rate environment, robust economic growth and a healthy deal pipeline are expected to strengthen the bank’s IB business in 2025.
JPM is expanding its footprint in new regions despite the proliferation of mobile and online banking options. In February 2024, the company announced plans to open more than 500 branches by 2027. This initiative will solidify its position as the bank with the largest branch network and a presence in all 48 states in the United States. It also is committed to renovating 1,700 existing locations by 2027-end to serve its customers better.
As of Sept. 30, 2024, the company had a total debt of $850.1 billion (the majority of this is long-term in nature). Its cash and due from banks and deposits with banks were $434.3 billion on the same date. JPMorgan’s solid liquidity position aids its capital distribution activities. The company announced an 8.7% increase in its quarterly dividend to $1.25 per share in September 2024 and authorized a share repurchase program of $30 billion in June 2024. As of Sept. 30, 2024, $23.6 billion authorization remained available.
The Zacks Consensus Estimate for the company’s earnings per share for 2024 and 2025 is pegged at $18.82 and $16.77, respectively. The Zacks Consensus Estimate for 2024 earnings implies a year-over-year increase of 15.96% but a decline of 10.87% for 2025.
JPM currently carries a Zacks Rank #3.
M&T Bank: Headquartered in Buffalo, NY, the bank has shown remarkable revenue growth by seeing a CAGR of 10.2% over the past five years (2018-2023). Although the metric declined in the first nine months of 2024, higher NII, driven by a favorable lending environment and recent Fed rate cuts is expected to support revenue growth. The company’s initiatives to strengthen non-interest income will bolster top-line growth.
MTB has a solid balance sheet position. As of Sept. 30, 2024, the company’s total debt (comprising short-term and long-term borrowings) of $14.2 billion was significantly lower than the cash and due from banks and interest-bearing deposits at banks of $26.6 billion. M&T Bank seems well-positioned in terms of its liquidity profile and is likely to be able to continue meeting debt obligations in the near term if the economic situation worsens.
In May 2024, the company hiked its quarterly dividends 4% to $1.35 per share. In the first nine months of 2024, the bank repurchased 3.8 million shares of its common stock. Management expects to repurchase $200 million worth of shares in the fourth quarter of 2024. Given MTB’s consistent performance and strong liquidity profile, its capital distributions seem sustainable.
The Zacks Consensus Estimate for M&T Bank’s earnings per share for 2024 and 2025 is pegged at $14.62 and $16.41, respectively. The Zacks Consensus Estimate for 2024 implies a year-over-year decline of 9.08% but a rise of 12.24% in 2025.
MTB currently carries a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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