Wells Fargo is up, JPMorgan is down: Bank stocks diverge in 2022

After three weeks of trading in the new year, big bank stocks are everywhere.

Wells Fargo WFC -2.42%

& Co. shares fell last week along with the broader market, but are still up 12% for the year. The bank is well positioned to take advantage of rising US interest rates, given its large US deposit and loan base. KBW analysts, who rate the stock outperforming, recently raised its price target to $67, citing stronger-than-expected growth in net interest income. Wells Fargo closed Friday at $53.67.

Wells Fargo is also cutting costs, unlike many of its peers. The bank said this month in its fourth-quarter earnings announcement that it had cut overall spending and headcount by 7% in 2021.

But other banks with larger operations on Wall Street reported higher spending, largely because they had to pay their employees more after strong investment banking and trading results. This weighs on the stock price. JPMorgan Chase JPM -1.75%

& Co. said during its earnings remarks this month that it would miss its longer-term return targets this year and possibly next year.

“This issue is certain for us: upfront spending for less certain secondary benefits,” Wells Fargo analysts wrote in a research note downgrading JPMorgan JPM. -1.75%


JPMorgan shares are down 8.4% year-to-date, and Goldman Sachs Group Inc.

shares are down 10%. Both banks announced record results for 2021, but investors appear to be focused on costs. Overall spending rose 7% at JPMorgan and 10% at Goldman.

Unusual price action even followed positive results. Shares of Morgan Stanley rose 4.3% on Thursday, the day after the release of record results for 2021. That made it the best performing stock that day in the S&P 500, which fell 1.1 % during the session.

It is unusual for a large bank to outperform all members of this index. This has only happened once since the start of 2021, according to Dow Jones Market Data. Wells Fargo paced the index on July 14.

The big banks were the best performers last year. A boom in transactions supported their results. Market volatility has led to outsized trading profits, and a hot housing market has made mortgage lending more profitable than ever. At the same time, the doomsday scenarios banks prepared for at the start of the pandemic never materialized, releasing additional one-time profits.

But the picture is bleaker now that the biggest U.S. banks have released their fourth quarter results, which revealed slowing business flows and rising costs.

So far in 2022, the KBW Nasdaq Bank Index is up 0.1%, much better than the broader markets, which are down. Last year, the banking index jumped 35%.

Write to Charley Grant at [email protected]

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