CNBC’s Jim Cramer reviewed the recent list of major bank earnings on Thursday and explained why his charitable investment trust is sticking to its ownership of Morgan Stanley and Wells Fargo.
“Banks are everywhere this earnings season, which shows the importance of individual stock picking,” the ‘Mad Money’ host said. “Not all banks are created equal,” he added, although he expects 2022 to be a strong year for finance as a whole due to likely interest rate hikes by the Federal Reserve.
When Citigroup reported on Friday, it showed an 18% year-over-year increase in operating expenses. That was disappointing for Wall Street, Cramer said, as the company’s revenue rose just 1%.
Cramer said the best thing he can say about Citi shares is that they are cheap, trading at around 80% of their tangible book value. However, he acknowledged that the stock, which was down nearly 5% last week, could see a rally this quarter when Citi resumes share buybacks; the bank suspended its buyback program in December due to regulatory issues.
Investors were also disappointed by higher noninterest expenses at JPMorgan, which rose 11% year-over-year, Cramer said. While it’s no secret JPMorgan is investing in its business to fend off competition from fintech, Cramer said the Street was a bit surprised by the scale of the capital commitment.
Cramer said he thinks the strong selloff in JPMorgan shares after earnings was a bit overdone. “After this drop, JPMorgan is trading at just 13 times earnings, despite being the most expensive of the bunch on [a book value basis]. I think you can do better,” he said.
Owned by Cramer’s charitable trust, Wells Fargo beat analysts’ expectations for revenue and earnings. “Most important, Wells is very interest rate sensitive, so when you see bond yields rising, think Wells Fargo,” Cramer said, adding that the bank’s turnaround under CEO Charlie Scharf is ” finally paid off.
Cramer reiterated his positive outlook on Goldman Sachs, explaining that he believes the investment banking giant can follow up its 2021 record with another strong performance this year. “Goldman is one of the best franchises in the world, but it sells for less than 9 times its earnings, for heaven’s sake,” he said.
He said the only reason his charitable trust doesn’t own Goldman Sachs is because it already owns Morgan Stanley. “I’m a big proponent of diversification – you don’t have to have two investment banks in your portfolio,” he said.
Cramer said he was very impressed with Morgan Stanley’s quarterly numbers on Wednesday, noting that revenue and earnings per share exceeded Street expectations. Its investment banking unit, as well as wealth management, is performing well, Cramer said, and spending remains under control.
“Oh, and they’re aggressively buying back stocks. What’s not to like?” Cramer asked rhetorically.
Bank of America
Cramer said Bank of America, which also released a report on Wednesday, provided strong numbers, including that revenue growth of 10% outpaced expense growth of 6%.
“Like Wells Fargo, Bank of America is very interest rate sensitive, which means it’s in a great position for 2022,” Cramer said, adding that the only reason his charitable trust doesn’t own Bank of America is that he prefers Wells Fargo. .
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