Shares of big banks rise. 3 stocks to consider adding to your portfolio.

Big bank stocks typically help kick off earnings season, and so far, investors like what they’ve heard from the sector. It all started with solid performances from JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE: WFC) in the first week of earnings, and then extended to Bank of America (NYSE: BAC) next week.

Let’s take a closer look at some key highlights from recent bank earnings and whether now is the time to buy some of these stocks.

Net interest income

One of the main sources of revenue and profits for banks is net interest income (NII), which is the difference between what the bank earns in interest and what it pays in interest on its deposits. In the third quarter, this was generally an area of ​​weakness for the major banks.

Wells Fargo recorded an 11% annual decrease in NII, while Bank of America recorded a 3% drop. Meanwhile, JPMorgan saw a 1% NII gain by excluding revenue from its markets. However, JPMorgan said it expects a sizable decline in the NII in the next quarter due to shifts in the yield curve and a drop in deposits following the Fed’s interest rate cut. Meanwhile, the firm ranked analyst estimates for 2025 for NII as a bit “toppy”.

Image source: Getty Images.

Wells Fargo, however, indicated that NII could have reached its lowest point in the third quarter, noting that it took deposit pricing measures to improve its NII. For its part, Bank of America in the second quarter previously pointed to an inflection in the NII in the second half of next year, as some coverages it has in place are accounted for.

While the NII can typically come under pressure as the Fed cuts rates, given that we have had an inverted yield curve (where two-year Treasury yields have been higher than 10-year Treasury yields) for some time, the Normalization of the yield curve should help most large banks move forward.

Wealth Management and Investment Banking

One area where big banks benefited in the third quarter was activities related to the stock market and investment banking.

Wells Fargo saw its third-quarter noninterest income rise 12% year over year, led by its brokerage and investment banking division. Investment advisory and brokerage fees rose 11%, while earnings from trading activities rose 14% and investment banking revenues soared 37%.

Meanwhile, Bank of America saw its Global Wealth and Investment unit increase third-quarter revenue by 8% year over year, driven by 14% higher asset management fees. Its Global Markets division increased revenue by 14%, led by increased trading revenue and rising investment banking fees.

The trend was similar at JPMorgan, where it reported a 9% year-on-year increase in third-quarter revenue at its asset and wealth management unit. Meanwhile, its commercial and investment banking revenues rose 13%, led by a 29% increase in investment banking revenues and a 27% jump in equity markets revenues.

With markets reaching all-time highs and the Fed beginning a rate-cutting cycle, this should continue to be an attractive environment for the wealth management and investment banking units of big banks. As stocks rise, their assets under management increase, which attracts more interest in the markets, and a favorable market environment can lead to more investment banking activity through initial public offerings and mergers.

Reviews

A common measure for valuing bank stocks is price/tangible book value (P/TBV), which is essentially the company’s market value divided by the value of its physical assets. In this regard, Wells Fargo and Bank of America trade at similar multiples of 1.6x, while JPMorgan trades at more than 2.4x.

JPM Price Data to Tangible Book Value by YCharts

JPMorgan CEO Jamie Dimon has previously said he thinks his company’s shares are overvalued. In May, he said: “Repurchasing shares in a financial company well above double the tangible book value is a mistake. Let’s not do that.” Now, JPMorgan was repurchasing shares at the time, but this was an indication that the company would not increase its level of repurchases. That said, the bank turned around in July and reinforced its buyback after selling part of its stake in Visa.

Right now, I think the environment for big banks looks favorable, with a more normalized yield curve and a strong equity market. However, I would continue to buy Bank of America and Wells Fargo given their more attractive valuations.

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Bank of America and Visa. The Motley Fool has a disclosure policy.