With the cautious economic outlook, geopolitical tensions, high inflation and an inverting yield curve, US banks have fallen significantly when compared to the all time highs. As a result, some of them now look attractive, particularly from a value investing perspective.
Here’s a list of the top 10 biggest US banks by market capitalisation. Do note that the rank stated in the snapshot below is based on a Global coverage with the China Big 4 banks, Canadian banks such as Royal Bank of Canada and Toronto Dominion Bank and Australian banks like Commonwealth Bank filling up the list.
Based on this list, we have identified our Top 5 US banks and will elaborate why we think these 5 US banks which in total account for nearly $900b in market capitalisation, are the best US banks to buy:
Best US Bank Stocks to buy
| US Bank Stock | Ticker (NYSE) | Market cap (US’b) | P/E ratio (times) | P/B ratio (times) | Yield (%) |
|---|---|---|---|---|---|
| JPMorgan Chase | JPM | 317.2 | 8.00 | 1.30 | 3.7 |
| Bank of America | BAC | 242.8 | 8.60 | 1.06 | 2.8 |
| Morgan Stanley | MS | 130.7 | 9.50 | 1.38 | 3.8 |
| Goldman Sachs | GS | 96.7 | 5.50 | 0.95 | 2.8 |
| Citigroup | C | 85.7 | 5.20 | 0.50 | 4.6 |
The key metrics of these banks are summarised in the table below.
| ROE (%) | CET 1 ratios (%) | Total assets ($’b) | Total Loans ($’b) | |
| JPMorgan Chase | 13.0 | 12.2 | 3,841 | 1,104 |
| Bank of America | 9.9 | 10.5 | 3,112 | 1,031 |
| Morgan Stanley | 10.1 | 15.2 | 1,174 | 215 |
| Goldman Sachs | 12.8 | 14.2 | 1,601 | 176 |
| Citigroup | 11.2 | 11.9 | 2,381 | 657 |
1) JPMorgan Chase (NYSE: JPM)
JPM is the world’s largest bank both in terms of market capitalisation and in terms of total assets with $3.84 trillion. When it released its 2Q22 results, its share fell 3.5% as it fell short of expectations. Its revenue of $31.6 billion was stable when compared to 1Q22 and $0.2 billion higher when compared to 2q21. Consequently, net income of $8.6 billion was higher than 1Q22’s $8.3 billion. However, it was much lower than 2Q21 of $11.9 billion as there was a release of reserve in 2Q21 while JPM increased its reserves for bad debt by about $400 million in 2Q22.
Total assets decreased from $3.95 trillion in 1Q22 to $3.84 trillion in 2Q22 but was still much higher than 2Q21’s level of $3.68 trillion. Loans increased from $1.07 trillion in 1Q22 to $1.10 trillion in 2Q22 off the back of higher consumer loans, credit card loans and wholesale loans. This was also much higher than 2Q21’s levels.
Its Corporate and investment banking division also saw income declining to $3.73 billion, much lower than the $4.39 billion recorded in 1Q22 and $5.02 billion recorded in 2Q22 as investment banking and fixed income revenue declined.
2) Bank of America (NYSE:BAC)
BAC is Warren Buffett’s second largest holding after Apple with an estimated 1.01 billion shares or a disclosed stake of 12.4% as of March’22 valued at more than $30 billion. Bank America’s ROE and CET1 ratios are the weakest on this list.
When it released its 2Q22 results, its share fell 2% as revenue fell shy of expectations. Its revenue of $22.7 billion was slightly lower when compared to $23.2 billion in 1Q22 and $1.2 billion higher when compared to 2Q21. Net income was $6.2 billion, 12% lower than 1Q22’s $7.1 billion and much lower than 2Q21 of $9.2 billion. Bank of America was also one of the few banks who released reserves of $48 million despite a larger loan book, though it was much lower than the $0.4 billion released in the previous quarter. The amount of debt written off was $0.6 billion, higher than 1Q22’s $0.4 billion but in line with 2Q21. The net written off ratio was 0.23% of total assets.
Total assets decreased from $3.23 trillion in 1Q22 to $3.11 trillion in 2Q22 but was still slightly higher than 2Q21’s level of $3.03 trillion. Loans increased from $1.00 trillion in 1Q22 to $1.03 trillion in 2Q22 off the back of higher loans in its various business segments, however, residential mortgage loans declined. This was also much higher than 2Q21’s levels and the portion of loans from institutions also grew.
Its Global markets division was the weakest among its divisions as it saw income declining by 36% or $577 million when compared to 1Q21.This was due to weaker trading performance in equities market.
3) Morgan Stanley (NYSE:MS)
MS is the US bank with the largest private wealth and investment management arm (just behind UBS & Credit Suisse). In 2020, it carried out two large acquisitions, E*Trade for $13 billion and Eaton Vance for $7 billion respectively. E*Trade offers an electronic trading platform and Eaton Vance is an investment management accompany with asset under management estimated at almost USD 500 billion.
When it released its 2Q22 results, its share fell nearly 3% as it fell short of expectations. Revenue for 2Q22 was much lower at $13.1 billion as compared to 1Q22 and 2Q21 of $14.8 billion. Although revenue decline across board, one big contributed to the decline in revenue from its institutional securities division as its investment banking division saw limited activity due to the uncertain macroeconomic environment.
Due to the decline in revenue, net income was $2.5 billion, much lower than 1Q22’s $3.7 billion. MS only increased its reserves for bad debt by about $101 million, only $44 million higher than 1Q22.
Total assets decreased from $1.22 trillion in 1Q22 to $1.17 trillion in 2Q22, just slightly higher than 2Q21’s level of $1.16 trillion. However, loans increased from $209 billion in 1Q22 to $215 billion in 2Q22 off the back of higher loans made in its wealth management division. This was also much higher than 2Q21’s levels.
The wealth management division saw fee-based client assets decline from $1.87 trillion to $1.71 trillion. Net new assets added also declined to $53 billion from $142 billion.
Its investment management division also saw AUM decline from $1.45 trillion to $1.35 trillion with a net outflow of $3.5 billion in AUM.
4) Goldman Sachs (NYSE:GS)
GS is the largest investment bank and also widely regarded as the best investment bank in the world.
When it released its 2Q22 results, its share was up 3.7% as it did well despite the tough market conditions, attesting to its strong brand. Its revenue of $11.9 billion was 8% lower when compared to 1Q22 and 23% lower when compared to 2Q21.
Net income of $3.5 billion was 24% lower than 1Q22 and 48% lower than 2Q21. Provision for credit losses increased 19% which added to the earnings weakness. Total assets increased slightly from $1.59 trillion in 1Q22 to $1.60 trillion in 2Q22.
The investment banking division fell 11% when compared to 1Q22 but 41% when compared to 2Q21 as equity underwriting declined 89% YoY while debt underwriting declined 52% YoY. This pretty much signals the end of the pandemic era fuelled boom in deal activity. Its global trading markets segment also saw similar declines.
Goldman Sachs has put much focus on growing its asset management and consumer wealth management segments and these bore fruits as management and incentive fees grew in totality.
With its strong performance across asset and wealth management, Goldman was able to increase quarterly dividend to $2.50 per share from $2.00 per share. As an investment bank, it also has the highest ROE and CET1 ratios on this list.
5) Citigroup (NYSE:C)
Citigroup is Warren Buffett’s latest addition with an estimated 55.2 million shares or a 2.8% stake valued at $2.4 billion.
When it released its 2Q22 results, its share increased 13% as it beat expectations. Its revenue of $19.6 billion was 2% higher than 1Q22’s and 11% higher when compared to 2Q21. Net income was $4.5 billion, 6% higher than 1Q22, but it was 27% lower than 2Q21 as there was a release of reserve of $2.4 billion in 2Q21 while Citi increased its reserves for bad debt by about $400 million in 2Q22.
Total assets decreased by 1% to $2.38 trillion in 2Q22 but was still 2% higher than 2Q21’s level. Loans remained stable at $657 billion when compared to 1Q22 but is 3% lower than 2Q21’s levels.
The revenue increase was due to growth in both net interest income as well as non-interest revenue. Higher net interest income was primarily driven by the benefits of higher rates as well as strong volumes.
Citi is one of the few banks on this list with a relatively new CEO, with Jane Fraser being on board since March 2021 while some of the other banks on this list have had their CEOs for a decade.
Citi is in the process of executing a transformation, disposing its international consumer retail business in various parts of the world to help it improve is expense and capital structures so that it can focus on areas in which it can grow, succeed and win in such as its global institutional franchise and wealth management franchise, particularly in Asia.
Should you add the best US bank stocks to your portfolio?
These US banks are the biggest banks in the world and have assets and operations in many locations. As large global banks, the performance of these banks are highly dependent on macroeconomic factors.
2022 has been a year of overall decline thus far for many of these banks as the optimism over higher interest rates benefiting the bank have been offset by pessimism over the equity markets and inflation affecting consumer confidence.
Nevertheless, some banks were able to outperform or exceed expectations and could be the ones to look out for. Goldman Sachs have shown why they are widely regarded as the world’s best investment bank while Warren Buffett has chosen well as Citi beat expectations and delivered the strongest post earnings one day share gain of 13%. Coincidentally these are also the two banks with the lowest valuations of the lot from a P/E and P/B perspective.