Bank of America Corp (BAC), JPMorgan Chase & Co. (JPM), Wells Fargo & Co (WFC): Why Big Banks Can Give Your Portfolio a Lift

Wells Fargo & Co (NYSE:WFC) will take the biggest hit from rising interest rates. Its mortgage-related income declined year-over-year by 3%, and it has yet to face the worst of the storm. Improved credit quality salvaged a 19% increase in profits, but investors would do well to watch the progression of mortgage-related income. If it drops drastically, buyers beware. However, its forward P/E outpaces the industry average, so when you couple that with the increases in credit quality you’ve got a recipe for success.

Foolish bottom line

There’s a lot to be wary of when it comes to investing in banks. Their reactions to the Fed’s actions tend to be fairly strong, so if Bernanke chooses to taper or end the $85 billion bond-buying program this year, these stocks could face some significant struggles.

Also, it’s very important to be aware of legislative actions—Senators Elizabeth Warren and John McCain have proposed what amounts to a re-institution of the Glass-Steagall. A hard line between trading and lending would drastically change the landscape of banking.

Barring the end of QE and the implementation of “Glass-Steagall 2,” all three stocks discussed have fairly strong prospects. Consumer spending is up, and lending should rise with it. Credit quality will increase as well, which is highly profitable for the banks. There are a few caveats regarding rising interest rates, but for the most part the big banks are on the rise and should continue their runs.

The article Why Big Banks Can Give Your Portfolio a Lift originally appeared on Fool.com and is written by Hunter Hillman.

Hunter Hillman has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase & Co (NYSE:JPM)., and Wells Fargo. Hunter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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