Breaking down the banks

The titans of Wall St approach the market in their own ways. Let’s take a closer look at some of the biggest names on the block.

Stakeshop Pty Ltd (‘Stake’) (NZBN: 9429047452152) is a registered Financial Service Provider (No. FSP774414) and holds a licence to provide a financial advice service. Stake can provide you with financial advice in relation to shares and ETFs. Content in this blog may be considered financial advice. We do not take into account your personal objectives, circumstances or financial needs. Our financial advice should be used as part of your wider research. For more detailed financial advice, we recommend you consult a financial adviser.

Stake does not charge any amount related to giving financial advice, and no incentive or commission is received for recommending any financial products. If you do trade via Stake’s platform, certain fees will apply - see a list of Stake’s fees here. Stake is not aware of any conflict of interest. If this changes, we will inform you and take reasonable steps to ensure our advice is not materially influenced. Stake has not been subject to a reliability event. If you wish to make a complaint you can do so by contacting us at For further information, see our full Financial Advice Disclosure here.

The U.S. has some of the world’s largest stock exchanges by market cap. They offer investors unmatched levels of liquidity and dynamism.

The simplest way to find these differences is to examine their business models. Some sources of income have performed better in recent years. It also helps establish the bank’s place in the industry landscape and could reveal a competitive advantage. There are also financial ratios and qualitative factors that can help investors make a decision. 

Some see the recent turmoil in the sector as a buying opportunity. The fall of Silicon Valley Bank and others has resulted in funds flowing to the larger, more established names. There’s speculation that further consolidation could be underway. It’s not clear yet whether quick actions from regulators have been enough to contain the issues and limit risks to the greater financial system. Investors are rightly wary and want more information before jumping in. 

Goldman Sachs ($GS)

The global banking and markets division remains the largest segment, accounting for $32.49b in revenue in 2022. It was strongly affected by the slowdown in merger and acquisition (M&A) and IPO activity compared to 2021. In Q4 2022 only 20 IPOs occurred in the U.S., less than one tenth of the 234 that went to market Q4 2021. Net revenues dropped around 20% year-on-year (y-o-y) and Goldman’s earnings missed analysts expectations for Q4 2023. Annual earnings per share dropped over 49% from $59.45 to $30.06. 

Due to  higher wages, benefits, and transaction fees expenses grew by 11% y-o-y. The bank has reportedly laid off 6.5% of employees in January 2023, but this number could rise if revenues continue to disappoint in the coming months. They also expect the rate of loan defaults to lift and have set aside $628m more than in 2021 for this area. Plans for the consumer banking segment are also being scaled back. Those expecting equity markets to recover and IPOs activity to pick again could be interesting in investing in Goldman. Those concerned that slower economic conditions will persist might look to another option. 

Dick Bove from Odeon Capital has announced an upgrade of Goldman Sach’s rating to a hold from sell and added a price target of $370.14. UBS’s Brenna Hawken has kept the outlook for the stock at neutral and put forward a lower price target of $350.00, up from the earlier $325.00. 

Morgan Stanley ($MS)

The firm has three major divisions covering institutional securities, wealth management and investment management. After the global financial crisis Morgan Stanley shifted focus to wealth management, as the capital costs for trading businesses escalated. The team has managed to expand this segment to 52% of their pre-tax profit mix from 26% in 2010. This means that Morgan Stanley’s profits were less exposed to the levels of IPO activity when compared to another firm such as Goldman Sachs. 

Wealth management and institutional securities both reported net revenues of $24.4b for 2022. The figures were $24.2 and $29.8b respectively in 2021, reflecting the 49% y-o-y decline in investment banking revenues. Higher interest rates and fixed income securities managed to offset the falls in the market values of assets. Provision for credit losses still increased significantly from $4m to $280m over 2022. The firm initially started layoffs late last year, which helped reduce the latest reported expenses. Annual earnings per share came down from $8.03 to $6.15. 

UBS analyst Brenna Hawken maintained a buy rating for Morgan Stanley with a price target of $98.00 per share. Oppenheimer’s Chris Kotowski expects the stock to outperform with a price target of $107.00, instead of his previous $102.00. 

JPMorgan Chase & Co. ($JPM)

The founder J.P Morgan’s grandson Henry Morgan struck out to start Morgan Stanley in 1935 and the two businesses don’t currently have any relations. Their paths have diverged over time,  with the Chase part being the largest consumer bank in the U.S. by total assets. The consumer and community banking segment saw 29% y-o-y upturn in revenue to $15.8b. JP Morgan is concerned about the surge in credit card loans and built up a net reserve of $1.4b in case of a mild recession. Investors expecting more interest rate rises might want to watch this stock closely.

Their balance sheet gives an insight into how businesses and consumers are faring with inflation and higher borrowing costs. The net interest income (NII) reveals the difference between earnings on loans and payments to deposits. JP Morgan gained $67.1b NII in 2022, of which $20.3b came in Q4 and up from a total $52.7b in 2021 . This is countered by increased expenses to stay ahead of competitors in terms of its technology offerings. On the corporate side revenues fell 9% to $10.5b, in particular investment banking had a 57% y-o-y decrease due to lower fees. The company  gained $914m from the sale of Visa Inc. shares. 

JPMorgan Chase has been downgraded from buy to hold by Deutsche Bank’s Matt O’Connor and he’s given a price target for the share of $145.00. Jason Goldberg from Barclays has maintained an overweight rating for the stock and provided a higher price target of $189.00.

Citigroup ($C)

The firm started a three phase restructuring plan in early 2022 to streamline operations and improve profitability. It plans to wind down consumer banking units, predominantly in emerging markets, and put a greater focus on institutional clients and wealth management. Whilst they have made gains by selling some units, the shift in strategy remains a costly exercise. Income from continued operations deteriorated from $22b in 2021 to $15 in 2022 and was a significant factor in the firm’s 32% slide in net income despite a 5% boost in revenues. 

Whether Citigroup can replace these revenues in the short-term is a key concern for any potential investors looking at the stock. Despite revenue growth of 34% in services and 18% in market revenues, the net income for the institutional clients segment slumped by a quarter. This was largely a result of the investment banking downturn. Higher costs of credit saw the wealth management segment’s net income fall 57%. Citibank also needs to absorb losses from ending all institutional banking services in Russia in Q1 2023. 

Goldberg also retained a hold rating for Citigroup, pushing up the price target from $57.00 to $61.00. Chris Kotowski has sustained the outperform rating for Citigroup and raised the price target to $87.00 from $83.00. 

These are just a few points to consider for investors looking at Wall St banks. There’s a lot more detail in the company’s financial reports and metrics online that can help give a more complete picture. One of these stocks could be a better fit with your investment strategy than the others, so also keep that in mind before making a decision. 

Want more?

You know what to do

Insights, trends and company deep dives delivered straight to your inbox.

Stake logo
Over 7,000 5-star reviews
App Store logoGoogle Play logo

Subscribe to our free newsletters

By subscribing, you agree to our Privacy Policy.

Stakeshop Pty Ltd is registered as an overseas company in New Zealand (NZBN: 9429047452152), and is registered as a Financial Service Provider under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (No. FSP774414). We hold a full licence issued by the Financial Markets Authority to provide a financial advice service under the Financial Markets Conduct Act 2013. However, the content on this website has not been prepared to take into account any of your individual objectives, financial situation or needs. To the extent you require further information about the relevant New Zealand legislation that may apply, or require specific advice, please contact your legal and/or financial adviser (as appropriate). The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Terms & Conditions, Privacy Policy, Financial Advice Disclosure and Disclaimers before deciding to use or invest on Stake. By using the Stake website or service in any way, you agree to our Privacy Policy and Terms & Conditions All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake is a registered trademark under class 36 (New Zealand).

Copyright © 2024 Stake. All rights reserved.