Bank stocks are facing pressure due to rising interest rates, impacting financial firms like Wells Fargo (WFC) and Morgan Stanley (MS) as they prepare to report earnings. These banks, along with others in the industry, have been affected by the Federal Reserve’s ongoing campaign to raise interest rates over the past year and a half. In response, they have become more cautious with lending and capital, leading to potential negative effects on their revenue and overall profits. Jim Cramer remarked, “The only thing that can change the situation for these banks is the end of the tightening cycle, so that people will be less concerned about credit problems.” The Federal Reserve has increased its benchmark interest rate 11 times since March 2022, resulting in the highest rates in 22 years. Financial firms are also dealing with the aftermath of multiple regional bank failures, such as Silicon Valley Bank (SVB) in March. As a result, Wells Fargo and Morgan Stanley have seen declines in their stock prices, down 4.3% and 8.6% respectively this year. The banking sector as a whole has experienced a decrease of over 24% in the KBW Bank Index year-to-date. However, despite these challenges, both Wells Fargo and Morgan Stanley possess strong fundamentals and diverse revenue streams that make us optimistic about their long-term prospects. Wells Fargo is set to release its third-quarter results on Friday, with Morgan Stanley following next Wednesday. For the three months ending September 30, analysts forecast Wells Fargo to report revenue of $20.1 billion, an increase from $19.5 billion the previous year. Earnings-per-share are expected to be $1.24, reflecting a year-over-year growth of 45% according to Refinitiv estimates. Investors will pay attention to Wells Fargo’s cost-cutting measures and its outlook on real estate loans, as the bank has significant exposure to the commercial real estate market, which has been negatively impacted by higher rates and office vacancies. CEO Charlie Scharf previously mentioned “higher losses in commercial real estate, primarily in the office portfolio,” and expressed the bank’s preparation for future weakness in the market. Wells Fargo has been focused on improving efficiency and reducing overhead in recent quarters. The bank currently has plans for further staff reductions and has decreased its pace of stock buybacks. Regarding Morgan Stanley, analysts anticipate the bank to report revenue of $13.2 billion for the same period, compared to $12.9 billion last year. Earnings-per-share are expected to decline by 16%, reaching $1.28. The bank’s investment banking division has faced challenges due to uncertain macroeconomic conditions, resulting in a decrease in mergers and acquisitions activity. However, Morgan Stanley executives have expressed confidence in the capital markets for 2024, which could lead to a stronger year for their investment banking division. The bank has also focused on wealth management as a strategy to counter the struggles in M&A and IPO markets. Jim Cramer noted, “Morgan Stanley is actively working to transform itself into more than just a bank, emphasizing its role as a financial advisor.” Additionally, the upcoming retirement of CEO James Gorman raises curiosity about the bank’s succession plans. As members of the CNBC Investing Club, we will continue monitoring these developments and make informed decisions based on Jim’s insights. (Jim Cramer’s Charitable Trust holds positions in WFC and MS. Click here for a full list of stocks.) Subscribers to the CNBC Investing Club with Jim Cramer will receive trade alerts and adhere to specific guidelines for executing trades. PLEASE REFER TO OUR TERMS AND CONDITIONS, PRIVACY POLICY, AND DISCLAIMER FOR INFORMATION REGARDING THE CNBC INVESTING CLUB. THERE IS NO FIDUCIARY OBLIGATION OR DUTY CREATED BY YOUR RECEIPT OF ANY INFORMATION FROM THE INVESTING CLUB. SPECIFIC OUTCOMES OR PROFITS ARE NOT GUARANTEED.
A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.
Reuters
Bank stocks remain under pressure due to high interest rates as financial firms like Wells Fargo (WFC) and Morgan Stanley (MS) get ready to kick off earnings season.
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