Difference between banks
Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) are fairly similar in how their businesses are structured with the exceptions that Goldman Sachs is more active in currencies and commodities, asset management, and trading. Morgan Stanley (NYSE:MS) generates almost half of its revenue from private wealth management and is less exposed to asset management.
Private wealth management is service-driven whereas asset management is product driven. The approach is different because private wealth management tends to focus on financial planning, whereas asset management is about investing pools of gathered capital.
JPMorgan Chase & Co. (NYSE:JPM) is perhaps the most diversified bank, making it a universal bank. This means it’s involved in asset management, private wealth management, investment banking, commercial banking, and consumer banking. The diversification of products and services gives JPMorgan Chase the least upside.
This is because JPMorgan Chase has to generate net income growth from segments that will grow at varying rates (commercial and consumer banking will lag the growth of asset management and investment banking).
JPMorgan Chase has had difficulty with generating consistent gains from investment activities (London Whale). However, the loss from the London Whale incident was largely offset by the vast empire of financial services the company has a grip on. This is why a lot of the headlining issues that face the bank have a limited impact on the stock price. Not to mention the diversification of the business helped to keep Jamie Dimon as both the CEO and chairman of the company.
Conclusion
The three banks are likely to generate returns that beat the market average (S&P 500). I believe that the investment banks and asset-management firms (Goldman Sachs, Morgan Stanley) are the hot spot for growth within the financial sector.
The investment banking industry is expected to grow earnings by 18.3% in 2013, with the asset management industry expected to grow earnings by 31.8% over the same period. On the other hand, Goldman Sachs and Morgan Stanley (NYSE:MS) did not provide any guidance for the next quarter. Even without guidance, I believe that these companies will be able to sustain earnings growth as the Dow Jones industrial average (Dow Jones Indices:.DJI) has continued to trend higher into the third quarter.
On the upside, savings and loans have more stability. This means JPMorgan Chase will be less exposed to the volatility of the stock market, but on the downside will generate lower rates of revenue growth. As a result, analysts anticipate JPMorgan Chase to report earnings growth of 13.5% for the 2013 fiscal year.
The article Who Will Profit the Most in the Financial Sector? originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM). Alexander 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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