In this piece, we will take a look at the ten best diversified bank stocks to buy now.
With 2024 heading to a close, the banking industry continues to be one of the most dynamic ones. While consumer and media attention has been fixated on technology due to the revolutionary potential offered by artificial intelligence, banks have slowly been adjusting to the market, industry, and economic conditions created by 24 year high interest rates in America.
The usual culprit behind the turmoil is the Federal Reserve. After the mini banking crisis in America last year that saw some of the biggest banks go under, Federal Reserve officials sped up rule changes to ensure that the biggest banks in America can maintain stability. These banks are called Global Systematically Important Banks (GSIBs) and they are selected on the basis of criteria that determine their importance to the global financial systems.
The initial set of these rules called the Basel III Endgame, would significantly increase the capital that GSIBs would have had to set aside to maintain stability. Within these banks, the largest would be required to increase their RiskWeighted Assets (RWAs) to jump. to 20%, with analysts expecting back then that banks would have to set aside their retained earnings (post net income money usually returned to shareholders or used to fund growth) for as much as four years to fund the. new requirements.
Naturally, the big banks weren’t pleased. Not only did the new rules propose disallowing the banks’ use of internal risk models to determine capital requirements, but they also targeted non interest income by including it in the calculations for determining operational risk. This income stream covers different areas, such as fees from payment processing and card transactions, and it had become a great way for big banks in particular to beef up their income statement during 2020 when interest rates were at a historic low. According to data from S&P Market Intelligence, banks with assets greater than $10 billion saw their noninterest income rise by 3.5% between Q1 2021 and Q1 2022. The growth trend was sharper for the broader industry over a longer horizon. Between Q1 2019 and Q1 2022, net interest income for US banks fell by 0.89% while noninterest income jumped by 17.2%.
The resistance from the banks worked, as Fed Chairman Jerome Powell shared with Congress in March that he was “confident that the final product will be one that has broad support at the Fed and in the broader world.” The Fed Chair was particularly moved by results from an independent study that showed that 97% of the comments submitted in response to the rules were critical of them. The banks’ push back came right when Basel regulators proposed changing the way in which big banks calculate their GSIB surcharge, to prevent them from window dressing their risk metrics at year end. According to calculations from Reuters, a 0.5% reduction in the GSIB surcharge saves America’s top two biggest banks a cumulative $16 billion, and the changes in this area could require the banks to use the average of their daily risk values during the reporting year.
Powell’s comments were followed by Fed Vice Chair for Supervision Michael Barr announcing in September that the new rules would now require big banks’ capital to increase by 9% as opposed to 19%. For banks with assets lower than $250 billion, their capital would increase between 3% to 4%, Barr added. The Fed official commented to reporters that “there are benefits and costs to increasing capital requirements. The changes we intend to make will bring these two important objectives into better balance, in light of the feedback we have received.”
Sounds good right? Think again, as banks and their investors weren’t pleased. The day Barr announced the new rules, the S&P’s bank stock index dropped by 2.70% before paring some of the losses to close 0.82% lower. However, bank investors weren’t disappointed only by the new rules. They were also digesting comments from top banking executives at the Barclays conference in New York; comments which saw the bank stock index drop by 3.1% the day after Barr released the vastly friendlier rules to close 1% lower.
At the conference, Goldman’s CEO warned that the bank could experience a 10% drop in trading revenue or the revenue that it earns from trading fixed income securities, currencies, and commodities. Citi CFO Mark Mason warned that market revenue could drop by 4%, while JPM’s operations chief Daniel Pino warned investors that their net interest income expectations were too high. The bank’s shares fell by 7.5% and closed the day 5.2% lower.
However, not all is dour for bank stock investors. According to McKinsey’s 2023 Annual Banking Review, the industry’s net interest margin improvements courtesy of high interest rates grew profits by $280 billion in 2022 and bumped the return on equity (ROE) to 12%. Global banking net income sat at a six year high of $1.3 trillion in 2022, and the report projected it to further grow to $1.4 trillion in 2023.
With these details in mind, let’s take a look at the best diversified bank stocks to buy.
Pixabay/Public Domain
Our Methodology
To make our list of the best diversified bank stocks to buy, we ranked the 40 largest diversified banks in the world traded on the NASDAQ or NYSE by their market capitalization and picked out the stocks with the highest number of hedge fund investors in Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. The Bank of N.T. Butterfield & Son Limited (NYSE:NTB)
Number of Hedge Fund Holders In Q2 2024: 19
The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) is a Bahamas based bank with operations in the UK, Canada, Switzerland, and other countries. Its shares have done modestly well over the past twelve months and are up by 27%. Since it’s a diversified bank, The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) has a well managed income statement. Out of its $143 million revenue for the second quarter, 38.8% was accounted for by noninterest income. Within this segment, $13 million was from Trust services, which provides The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) with a stable business as trusts are often built on consumer confidence and trust in the banking institution. They are also a specialized vehicle, which provides the bank with competitive advantages, and The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) has also benefited by on boarding Credit Suisse’s assets which has helped it grow its presence in Singapore’s lucrative trust market. Additionally, the bank could see growing revenue from portfolio investments if interest rate cuts materialize and equity markets start to appreciate.
During its Q2 2024 earnings call, The Bank of N.T. Butterfield & Son Limited (NYSE:NTB)’s management shared details about its asset management, which could create headwinds if improperly managed:
“We’re just naturally asset sensitive because we’re 40% lent, right? Essentially, our [indiscernible] deposits are seasoned over time and the lending preference in our lending markets is for floating rate. And so, hat gives rise to that sort of what we call structural asset sensitivity for us. We feel pretty good about the OCI burn down path that we’re on. Obviously, there’s always discussions around, should we be doing something different in securities portfolio and re-ladder at this point. But I think, at the moment, we’re pretty committed to the path. We have, I think, a visibility now of a rate path or at least a direction of rate path that gives us some confidence around OCI burn down and, therefore, a tangible book value growth.
But it’s something that we often discuss in terms of longer term, what is the level of fixed rate that we want to have on the books, whether it’s loans or investment securities versus floating rate. And because we don’t have a lender of last resort or a central bank, we’re naturally just going to have a lot of liquidity because, essentially, we need to manage our own treasury operations across the four different banking jurisdictions. And so, that gives rise to a further increase in asset sensitivity because, obviously, we test – we use VAR and min max inflow/outflows to kind of estimate how much cash we need to hold. So I think the reality is, we – having been in Bermuda banks for a long time – are yet to see some structural action. But I think we’re probably always going to be a bit asset sensitive through the cycle.
I think the fees give us a great sort of buffer. They’re very stable, capital efficient. But other than that, it’s an ongoing discussion, but nothing really to report.”
9. Barclays PLC (NYSE:BCS)
Number of Hedge Fund Holders In Q2 2024: 20
Barclays PLC (NYSE:BCS) is a British banking giant that operates in investment banking, investment management, wealth management, retail banking, and other industries. Based on its income distribution, during H1 2024, £6.3 billion of the bank’s £13.2 billion in income was from its investment banking division. If you read the introduction to our piece, you’d have learned that a recent conference saw banking officials cautioned about dropping interest income. However, at the same event, they also shared optimism for investment banking, which could prove to be a positive catalyst for Barclays PLC (NYSE:BCS). However, £3.7 billion of the income is via Barclays PLC (NYSE:BCS)’s Barclays UK division which can struggle in the future. Interest rates in the UK are also at historic highs, and unlike the US, the British economy is not growing as fast. Analysts also expect that British customers might increase their mortgage defaults due to the higher rates, which might not bode well for Barclays PLC (NYSE:BCS).
However, Barclays PLC (NYSE:BCS)’s management believes that it can see tailwinds from a slow rate cut cycle (which also means headwinds if things speed up). It has also created hedges to ensure stability in its income statement and UK divison earnigs:
“We have also updated our UK rate expectations for 2024, and now assume one base rate cut to 5% by the end of the year. Together, these trends mean that we have increased our 2024 guidance for Group NII, ex-investment bank and head office, to circa GBP11 billion for the full year, up from GBP10.7 billion. Within this, NII guidance for Barclays UK increased from $6.1 billion to circa $6.3 billion, excluding the Tesco Bank acquisition. A further UK rate cut to 4.75% towards the end of the year, which is currently assumed in the latest consensus, would not materially change NII this year. Moving on to the structural hedge on Slide 10. As a reminder, the structural hedge is designed to reduce volatility in NII and manage interest rate risk. As rates have risen, the hedge has dampened the growth in our NII, and in a falling rate environment, we will see the benefit from the protection that it gives us.
The expected NII tailwind from the hedge is significant and predictable. GBP11.7 billion of aggregate gross income is now locked in over the three years to the end of 2026, up from GBP9.3 billion at Q1. We have around GBP170 billion of hedges maturing between 2024 and 2026 at an average yield of 1.5%. As we said in February, reinvesting around three quarters of this around 3.5% would compound over the next three years to increase the structural hedge income in 2026 by circa $2 billion versus 2023. In response to greater stability in customer and client deposit behavior, we have slightly increased the average duration. Given the high proportion of balances hedged and the programmatic approach we take, we are relatively insensitive to the short-term impact of potential rate cuts.”
8. Royal Bank of Canada (NYSE:RY)
Number of Hedge Fund Holders In Q2 2024: 21
Royal Bank of Canada (NYSE:RY) is one of the biggest banks in Canada with close to 100,000 employees. Like other diversified banks, it generates a significant portion of its revenue from noninterest income. In fact, for Royal Bank of Canada (NYSE:RY), its revenue is split a precise half by its interest and noninterest income. For the first nine months of its FY2024, Royal Bank of Canada (NYSE:RY) earned C$42.2 billion in revenue, out of which C$20.2 billion and C$21.9 billion were through its interest and noninterest income, respectively. The bank has already started to position itself for lower interest income through the start of the rate cut cycle in Canada. This is because Royal Bank of Canada (NYSE:RY) completed a mega acquisition of HSBC’s Canada operations in March 2024. The deal added C$134 billion in assets and 130 branches into its portfolio, which substantially bolsters Royal Bank of Canada (NYSE:RY)’s position in the Canadian banking market. As of its Q3, the bank’s CET1 ratio was 13%, which protects it well against any turbulence in case of an economic downturn.
Royal Bank of Canada (NYSE:RY)’s management is aware of the broader macro economic risks to its business. Here’s what it had to say during the Q3 2024 earnings call:
“Before discussing our business results in greater detail, I will provide my perspective on the macro environment where the U.S. has outperformed a softening Canadian macro backdrop. In Canada, higher interest rates and rising unemployment are impacting consumer spending and business investment. This in turn has led to a moderating non-shelter inflation and lower GDP per capita. Contrast, U.S. inflation remains above the targeted range. However, there are signs that the restrictive interest rate policy is stabilizing supercore inflation measures, while the U.S. labor market remains resilient. Declining job openings and rates of attrition point to some weakening. The short-term divergence of monetary policy between the Bank of Canada and the U.S. Federal Reserve is expected to narrow ahead of expected and accelerating U.S. interest rate cuts, with positive implications for yield curves.
While there’s a higher degree of geopolitical uncertainty and volatility, our diversified businesses are well positioned for the macro driven shifts in the operating environment. We expect to see the benefits of lower short-term interest rates and capital markets activity, constructive equity markets, availability of credit, improved debt serviceability and the flow of money from deposits into investments. As we continue to provide our clients with valued advice and solutions amidst a complex backdrop. We’re also delivering on our strategic priorities across our largest businesses and geographies, including expanding our funding and transaction banking capabilities.”
7. The Toronto-Dominion Bank (NYSE:TD)
Number of Hedge Fund Holders In Q2 2024: 22
The Toronto-Dominion Bank (NYSE:TD) is another Canadian bank. It has a presence in the US and Canadian commercial banking, retail banking, wealth management, and insurance markets. While most banks benefit from a diversified business model, it also creates a unique set of risks. This is also the case for The Toronto-Dominion Bank (NYSE:TD), which has faced headwinds from insurance and regulatory compliance. These are reflected in the stock, which is down 4.19% year to date and up by a modest 1.65% over the past twelve months. Money laundering concerns have made it set aside $2.6 billion in contingency, and the bank is expected to take a $1 billion hit to the income statement later this from these. Additionally, The Toronto-Dominion Bank (NYSE:TD) saw rising weather catastrophe related claims during its Q3, which led to the wealth and insurance division’s net income dropping by $191 million sequentially. The multi billion dollar regulatory allocations should impact The Toronto-Dominion Bank (NYSE:TD)’s plans of growth and its narrative should be shaped by these in the near future at least.
The Toronto-Dominion Bank (NYSE:TD)’s management is busy managing costs during this tumultuous time. Here’s what it had to say during the Q3 2024 earnings call:
“From an expense perspective, a few different levers that we’re looking at managing as we move forward. And certainly, one of them is around finding the right mix within the complements. And when you actually look at the traffic within our branches, transaction traffic within branches are actually down 50%, over the past – since the pandemic. And so, we’ve looked at how do, we actually find the right balance.
And what we’re doing within our branch network, is actually moving from a one service colleague to one sales colleague, to two sales colleagues, or two adviser colleagues to one service colleague, that’s driving significant productivity while we’re able to actually take down costs, in our Canadian branch network on that side. And so, I see that playing through from a productivity perspective. The other thing that we’re looking at is likely, or we are looking across the entire spectrum on expense management in the Canadian personal bank, whether it’s real estate, whether it’s from the actual the head office complements, and what have you. And so, we continue to be looking at that, as we line up our strategies as we move forward.”
6. UBS Group AG (NYSE:UBS)
Number of Hedge Fund Holders In Q2 2024: 33
UBS Group AG (NYSE:UBS) is a Swiss mega bank headquartered in Zurich, Switzerland. It is one of the most crucial banking stories in the industry right now as the sector recovers from the stress that big banks faced in 2023. This saw Swiss giant Credit Suisse fail, and UBS Group AG (NYSE:UBS), somewhat unwillingly, bought it. Credit Suisse was UBS Group AG (NYSE:UBS)’s biggest local competitor and it was sold for an 80% discount, for quite a sweet deal. It has appeared to have paid off too, as after two consecutive quarters of losses, UBS Group AG (NYSE:UBS) posted a bonanza of $1.8 billion in profit in Q1 which decimated analyst estimates of $598 million. The deal has also allowed the bank to benefit from economies of scale through lower costs and allowed wealth management assets to grow by 3% to $54 billion in H1 2024. Should further cost catalysts emerge from the deal, UBS Group AG (NYSE:UBS) could see tailwinds in the future. However, in an ironic twist, the bank might have to beef up capital requirements because of its growth.
UBS Group AG (NYSE:UBS)’s management had the following to say about the Basel III regulations during the Q2 2024 earnings call:
“So on Basel III final as mentioned, we still expect $25 billion impact is 5% of risk-weighted assets, so in that range. As you mentioned, we guided in the fourth quarter in our investor update that $15 billion is in the core, $10 billion is in non-core. I think for now, that split remains pretty robust in terms of how we’re thinking — how we’re seeing it, and actually we’ll continue to work down the NCL portfolio to make that impact lessened over time. In terms of the NII guidance for P&C, just to — you asked for clarity on — it is in Swiss francs, so we’re guiding in Swiss francs. We’ll offer both in the future to sort of help. As I mentioned, in 3Q, we see a low single-digit down in Swissy, but flat sequentially in USD.
And as I mentioned, I think that’s a good outcome that we’ve had a number of headwinds that we’ve been working through sort of reaffirm the guidance for the full-year is also a function of some management actions that have been taken, including some loan repricing actions that have helped. So those are the drivers of the NII guidance for P&C.”
5. The Bank of New York Mellon Corporation (NYSE:BK)
Number of Hedge Fund Holders In Q2 2024: 50
The Bank of New York Mellon Corporation (NYSE:BK), the bank founded by Alexander Hamilton in 1984, is a GSIB. This places it at the heart of the ongoing tussle between the Federal Reserve and big banks over the Fed’s decision to implement tighter capital requirements that could eat into banking retained earnings for at least two years. However, investors have brushed this off, as The Bank of New York Mellon Corporation (NYSE:BK)’s shares are up by 51.7% over the past year and by 31.45% year to date. Key to this performance has been the bank’s remarkable ability to keep its costs under control even as inflation still hasn’t dropped fully. In H1 2024, The Bank of New York Mellon Corporation (NYSE:BK)’s noninterest expenses were $6.23 billion which were essentially flat over the year ago figure of $6.11 billion. Additionally, a sizeable $4.6 billion of its $7 billion in H1 noninterest income was through investment services fees. This provides The Bank of New York Mellon Corporation (NYSE:BK) exposure to rate cut tailwinds to the stock and investment markets, with the bank benefiting as stock, M&A, and other associated activities pick up.
The Bank of New York Mellon Corporation (NYSE:BK)’s management shed more light on its investment services revenue during the Q2 2024 earnings call:
“Total investment services fees were up 3% year-over-year. In Asset Servicing, investment services fees grew by 4%, primarily reflecting higher market values and net new business. We continue to see strong momentum in ETF servicing with AUC/A of over $2 trillion, up more than 50% year-on-year, and the number of funds serviced up over 20% year-on-year.
This growth reflects both higher market values as well as client inflows, which included a large ETF mandate in Ireland from a leading global asset manager. In alternatives, fund launches for the quarter continued their recent activity in private markets. Investment services fees for alternatives were up mid-single-digits, reflecting growth from both new and existing clients. And in Issuer Services, investment services fees were up 1%, reflecting net new business across both Corporate Trust and Depositary Receipts, partially offset by the normalization of elevated fees associated with corporate actions in Depositary Receipts in the second quarter of last year. We’re particularly pleased to see the investments and new leaders in our Corporate Trust platform beginning to bear fruit.”
4. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders In Q2 2024: 83
Wells Fargo & Company (NYSE:WFC) is one of the biggest consumer banks in the US which also operates in investment banking, commercial banking, wealth management, and other markets. The retail exposure is also evident on its income statement, with $11.9 billion of the bank’s $20.6 billion in revenue coming through interest. This means that as interest rates drop, Wells Fargo & Company (NYSE:WFC)’s interest income also faces a threat, but if they don’t drop, then the bank has to contend with higher costs in a classic double whammy. The higher costs also made Wells Fargo & Company (NYSE:WFC) increase the low end of its annual net interest income guidance drop to 8% during Q3 from an earlier 7%. Yet, the bank’s noninterest income depends on trading activities and investment advisory. Cumulatively, these accounted for $3.8 billion of Wells Fargo & Company (NYSE:WFC)’s $8.7 billion in noninterest income allowing it significant room to benefit from tailwinds from lower rates and increased stock market and capital markets activity.
Wells Fargo & Company (NYSE:WFC)’s management commented on its investment arm during the Q2 2024 earnings call:
“We have been methodically growing our corporate investment bank, which has been a priority and continues to be a significant opportunity for us. We are executing on a multi-year investment plan while maintaining our strong risk discipline and our positive momentum continues. We have added significant talent over the past several years and we’ll continue to do so in targeted areas where we see opportunities for growth. Fernando Rivas recently joined Wells Fargo as Co-CEO of Corporate Investment Banking. Fernando has deep knowledge of our industry and his background and skills complement the terrific team Jon Weiss has put together. While we view our work here as a long-term commitment, we expect to see results in the short and medium term and are encouraged by the improved performance we’ve already seen with strong growth in investment banking fees during the first half of the year.
In our Wealth and Investment Management business, we have substantially improved advisor retention and have increased the focus on serving independent advisers and our consumer banking clients, which should ultimately help drive growth. In the commercial Bank, we are focused on growing our treasury management business, adding bankers to cover segments where we are underpenetrated, and delivering our investment banking and markets capabilities to clients and believe we have significant opportunities in the years ahead.”
3. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders In Q2 2024: 85
Citigroup Inc. (NYSE:C) is another GSIB with a presence in personal banking, markets, wealth management, and trading. When we consider the reshaping banking environment with interest rate cuts on the horizon and potential growth in trading and other activities, Citigroup Inc. (NYSE:C) has a more robust income statement when compared to other GSIBs, This is because the bank’s Service revenue, which covers receivables processing, payments, and cash management, accounts for $4.6 billion of its $19.4 billion in revenue. This is a high margin business, which contributed $1.2 billion of Citigroup Inc. (NYSE:C)’s $2.9 billion in net income in Q2 2024. This is key to the firm’s hypothesis, as Services introduces a reduced risk income stream into its operations, which should prove beneficial moving forward even if higher rates continue to stress net interest income. Citigroup Inc. (NYSE:C) has also realized benefits from a turnaround effort that led to its pre provision earnings (PPE) jumping by 11% to $6.6 billion in Q2. Further additions or synergies can prove beneficial for the stock.
Citigroup Inc. (NYSE:C)’s management believes the future is bright when it comes to realizing benefits from its recent restructuring. Here’s what it said during the Q2 2024 earnings call:
“Our transformation is addressing decades of underinvestment in large parts of Citi’s infrastructure and in our risk and control environment. And when you unpack that, those areas where we had an absence of enforced enterprise-wide standards and governance, we’ve had a siloed organization that’s prevented scale, a culture where a lot of groups are allowed to solve problems — the same problem in different ways, fragmented tech platforms, manual processes and controls and a weak first-line of defense, too few subject matter experts. So, this is a massive body of work that goes well beyond the consent order. And this is not old Citi putting in band-aid.
This is Citi tackling the root issues head-on. It’s a multi-year undertaking as we’ve talked about and you saw the statement by one of our regulators this week, we have made meaningful progress on our transformation — excuse me, and on our simplification.”
2. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders In Q2 2024: 92
Bank of America Corporation (NYSE:BAC), another GSIB, is one of the biggest banks in the world courtesy of its 66 million customers. This provides it with a sizeable base which lends stability, and the GSIB status means that the risks of the bank failing are also lower. However, these do not insulate Bank of America Corporation (NYSE:BAC) from turmoil as was evident in 2023. During the first half of the year, Bank of America Corporation (NYSE:BAC)’s interest expense stood at a whopping and unbelievable $32.4 billion to mark a 753% annual jump. This was felt through to the net interest income, as it meant that Bank of America Corporation (NYSE:BAC)’s NII during the period grew by just 16.6%. The worst is over though, as during H2 2024, the bank’s interest costs grew by a more acceptable 40%. However, Bank of America Corporation (NYSE:BAC) is still feeling the pinch of the high costs, as its H1 2024 net interest income dropped by roughly $900 million. Through a slight buffer from noninterest income, this meant that Bank of America Corporation (NYSE:BAC)’s total revenue remained flat in H1. However, as markets recover through low interest rates, Bank of America Corporation (NYSE:BAC)’s three key noninterest income line items, namely Investment Banking Fees, Investment and Brokerage Services, and Card Income should see notable upticks which were already present in H1 and helped stem the bleeding from high interest costs.
Bank of America Corporation (NYSE:BAC)’s management commented on these high growth segments during the Q2 2024 earnings call. Here is what they said:
“We grew investment banking fees 29% year-over-year and saw sales and trading revenue increase 7%. Global Markets had its 9th consecutive quarter of year-over-year growth in sales and trading revenue, a good job by Jimmy DeMare and his team. Card and service charge revenue also grew by 6% year-over-year in our Consumer business. Much of this fee growth is a result of our intensity around organic growth, and is a testament to the diversity of our operating model. Now on to slide three. Organic growth has been driven by several key factors. First, we focus on our customers. We continue to place them at the center of everything we do. Consumer led the way in delivering solid organic growth with high-quality accounts and engaged clients. For the 22nd consecutive quarter, we had significant net new consumer checking accounts.
We expanded our customer base and our market share. Specifically, we added 278,000 net new checking accounts this quarter, which brings our first six months of 2024 to more than 500,000. In wealth management, we added another 6,100 new relationships this quarter. In our commercial businesses, we added 1,000s of small businesses and 100s of commercial banking relationships. This has led to now managing $5.7 trillion in client balances, loans, deposits, and investments across the consumer and wealth management client segments. In those areas, we saw flows of $58 billion in the past four quarters. Our emphasis on personalized financial solutions and superior customer service has strengthened customer loyalty, attracted new clients across all our businesses.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders In Q2 2024: 111
JPMorgan Chase & Co. (NYSE:JPM), is the bank of banks. It yields considerable influence world wide, and dominates the world through its unbelievable total assets of $3.8 trillion. The key for the bank moving forward into the sector’s paradigm shift are its capital allocation costs and its capital markets business. On the former front, while JPMorgan Chase & Co. (NYSE:JPM)’s GSIB status has meant that it’s been in the regulatory spotlight for higher capital allocations, its heft also means that before the new rules that confirmed a 9% capital allocation, Morgan Stanley analysts had expected JPMorgan Chase & Co. (NYSE:JPM) to cover the new allocations in less than three years. This was the lowest among its GSIB peers, and the new percentage, which is significantly lower, could reduce the time even more. However, JPMorgan Chase & Co. (NYSE:JPM) might have to book additional costs through capital allocations if the Fed tweaks risk calculations for GSIB surcharges. The bank’s capital markets business and others such as asset management also position it well to benefit from reduced interest rates and a shifting banking environment. Capital markets adoption boomed during the high rate era among those that did not qualify for standard banking. Furthermore, during H1 2024, JPMorgan Chase & Co. (NYSE:JPM) earned a cumulative $12.7 billion through investment banking and asset management to mark a 23% annual growth as these tailwinds started to materialize.
JPMorgan Chase & Co. (NYSE:JPM)’s management commented on capital markets during the Q2 2024 earnings call:
“Demand for new loans remains muted as middle market and large corporate clients remain somewhat cautious due to the economic environment, and revolver utilization continues to be below pre-pandemic levels.
Also, capital markets are open and are providing an alternative to traditional bank lending for these clients.”
JPM tops our list of the best hedge fund diversified bank stocks. But our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JPM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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