Best Bank Stocks to Invest in Ahead of Rising Interest Rates The Fed will also phase out its bond-buying program by March. What does that mean for you? When the Fed raises interest rates, you may decide it's a good time...
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Federal Reserve officials have indicated they expect to raise interest rates three times in 2022 and expected increases will likely happen in March, June and September. The rates will likely rise to around 4% by the end of the year. The Federal Reserve may also raise rates in 2023 — possibly up to three more times to counter the threats inherent in inflation.
The Fed will also phase out its bond-buying program by March. What does that mean for you? When the Fed raises interest rates, you may decide it's a good time to invest in bank stocks.
But which type of bank stocks will give you ample opportunity — commercial, investment or universal bank stocks? Let's find out.
Types of Bank Stocks You Can Invest In
When rates climb, profit margins expand within banks, insurance companies and brokerage firms. But what type of bank stocks make the most sense for your individual portfolio? Let's go over a few types of banks.
What comes to mind when you hear the word "commercial bank?" Yes — hulking behemoths that grant loans, accept deposits and offer basic financial products like savings accounts. They make money through customer deposits and then in turn, lend that cash to borrowers. The largest commercial banks in the U.S. include Wells Fargo (NYSE: WFC) and U.S. Bancorp (NYSE: USB).
Investment banks complex financial transactions, advisory services, stock trading, and asset management by purchasing and selling stocks and bonds for corporations, companies and governments. They also help companies issue IPOs. Commercial banks, on the other hand, stick to loans and banking for companies or individuals. Two of the biggest investment banks are Morgan Stanley (NYSE: MS) and the Goldman Sachs Group, Inc. (NYSE: GS).
Universal banks handle both commercial banking and investment banking services. Put simply, they combine the lending and payment services of commercial banks with a wider range of financial services. Here are two of the most prolific commercial and investment banks you already know: JPMorgan Chase and Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC).
Bank Stocks to Add to Your Portfolio Ahead of Rising Rates
You don't have to dread rising interest rates. In fact, if you have a long time horizon, you can benefit for the long haul. Let's go over several bank stocks you can add to your portfolio.
Bank of America Corp., a bank and financial holding company serves banking, investing, asset management and other management products and services to individual consumers, small and middle-market businesses, and large corporations. Bank of America Corp. provides banking and nonbank financial services through consumer banking, which offers credit, banking, and investment products and services to consumers and small businesses. Its global wealth and investment management segment meets clients' needs through investment management, brokerage, banking and retirement products and its global banking segment handles lending-related products and services, integrated working capital management and treasury solutions.
In Q4 2021, net income rose 28% to $7 billion, or $0.82 per diluted share, reflecting strong operating leverage as revenues grew faster than expenses and revenue, net of interest expense, increased 10% to $22.1 billion. Average loan and lease balances were up $10 billion to $945 billion and ending balances up $51 billion to $979 billion, led by strong commercial loan growth as well as higher card balances. These stats are the only good news on the first few quarterly earnings reports for Bank of America. There's more news ahead when the federal government puts interest rates full swing ahead.
The holding company SVB Financial Group, headquartered in Santa Clara, California, offers banking and financial services through global commercial bank (through private equity division, SVB wine, SVB analytics and debt fund investments), SVB private bank (personal financial solutions for consumers), SVB capital (venture capital investments) and SVB Leerink (equity and convertible capital markets, mergers and acquisitions, equity research and sales and trading for growth and innovation-minded health care and life science companies).
Consolidated net income available to common stockholders for Q4 2021 was $371 million, or $6.22 per diluted common share, compared to $365 million, or $6.24 per diluted common share, for Q3 2021 and $388 million, or $7.40 per diluted common share, for Q4 2020.
Consolidated net income was $1.8 billion, or $31.25 per diluted common share, compared to $1.2 billion, or $22.87 per diluted common share, for the comparable 2020 period.
Interest rates should add to SVB Financial Group's earnings and will open up ample additional investment opportunities for the company.
Citigroup Inc. provides financial products and services under the following divisions: global consumer banking (under traditional banking services to retail customers through retail banking), institutional clients group (provides fixed income and equity sales and trading, foreign exchange, prime brokerage, derivative services, equity and fixed income research, corporate lending, investment banking and advisory services, private banking, cash management, trade finance and securities services) and more.
Citigroup Inc. in Q4 2021 reported net income of $3.2 billion, or $1.46 per diluted share, on revenues of $17 billion in revenue. This means net income of $4.3 billion or $1.92 per diluted share on revenues of $16.8 billion.
Net income of $3.2 billion decreased 26% from the prior-year period and earnings per share of $1.46 decreased 24% from the prior-year period.
For the full year 2021, Citigroup reported net income of $22 billion on revenues of $71.9 billion, compared to net income of $11 billion on revenues of $75.5 billion in 2020.
Ready for Interest Rates to Rise?
Might as well get ready — the Fed won't hold back this year, so bank stocks should be your answer. If you've already invested in the companies we've listed above, never fear. Hundreds of other bank stocks can carve out a place in your portfolio. Do your homework before you buy by checking the fundamentals and you'll be set.