Interest rates

The best bank stocks to invest in before interest rates rise

Federal Reserve officials have said they plan to raise interest rates three times in 2022 and the planned increases will likely occur in March, June and September. Rates will likely rise to around 4% by the end of the year. The Federal Reserve could also raise rates in 2023 – possibly up to three times more to counter the inherent threats of inflation.

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The Fed will also phase out its bond buying program by March. What does this mean to you? When the Fed raises interest rates, you may decide it’s a good time to invest in bank stocks.

But what kind of bank stocks will give you lots of opportunities – commercial, investment or universal banking stocks? Let’s find out.

Types of bank stocks you can invest in

When rates go up, profit margins increase within banks, insurance companies and brokerage firms. But what type of bank stocks is best suited to your individual portfolio? Let’s review a few types of banks.

commercial banks

What comes to mind when you hear the word “commercial bank”? Yes, towering behemoths that grant loans, take deposits, and offer basic financial products like savings accounts. They earn money from customer deposits and, in turn, lend that money to borrowers. The largest commercial banks in the United States include Wells Fargo (NYSE:WFC) and US Bancorp (NYSE:USB).

Investment banks

Investment banks perform complex financial transactions, advisory services, stock trading, and asset management by buying and selling stocks and bonds for companies, corporations, and governments. They also help companies issue IPOs. Commercial banks, on the other hand, stick to loans and banking services for businesses or individuals. Two of the largest investment banks are Morgan Stanley (NYSE:MS) and the Goldman Sachs Group, Inc. (NYSE:GS).

Universal banks

Universal banks handle both commercial banking and investment banking. Simply put, they combine the lending and payment services of commercial banks with a wider range of financial services. Here are two of the most prolific commercial and investment banks you already know: JPMorgan Chase and Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC).

Bank stocks to add to your portfolio before rates rise

You don’t have to fear rising interest rates. In fact, if you have a long-term horizon, you can benefit from it in the long run. Let’s review several bank stocks you can add to your portfolio.

Bank of America Corp. (NYSE: BAC)

Bank of America Corp., a bank and financial holding company, provides banking, investment, asset management, and other management products and services to individuals, small and medium-sized businesses, and large corporations. Bank of America Corp. provides banking and non-banking financial services through retail banking, which offers credit, banking and investment products and services to consumers and small businesses. Its global wealth and investment management segment serves clients’ needs through investment management, brokerage, banking and retirement products, and its global banking segment manages loan-related products and services, integrated working capital management and treasury solutions.

In the fourth quarter of 2021, net income increased 28% to $7 billion, or $0.82 per diluted share, reflecting strong operating leverage as revenue grew faster than expenses and revenue, net of interest expense, increased 10% to $22.1 billion. Average loan and lease balances increased $10 billion to $945 billion and closing balances increased $51 billion to $979 billion, driven by strong commercial loan growth as well as to higher card balances. These statistics are the only good news from Bank of America‘s first quarterly earnings reports. There’s more news to come when the feds push interest rates full throttle.

SVB Financial Group (NASDAQ: SIVB)

The holding company SVB Financial Group, headquartered in Santa Clara, Calif., offers banking and financial services through a global commercial bank (through the private equity division, SVB Wine, SVB Analytics and debt fund investments), private banking SVB (personal consumer financial solutions), SVB capital (venture capital investments) and SVB Leerink (equity and convertible capital markets, mergers and acquisitions, research, sales and equity trading for growth and innovation-driven healthcare and life sciences companies).

Consolidated net income available to common shareholders for Q4 2021 was $371 million, or $6.22 per diluted common share, compared to $365 million, or $6.24 per diluted common share, for Q3 2021 and $388 million, or $7.40 per diluted common share, for Q4 2020.

Consolidated net income was $1.8 billion, or $31.25 per diluted common share, compared to $1.2 billion, or $22.87 per diluted common share, for the comparable period of 2020 .

The interest rates are expected to increase SVB Financial Group’s revenue and will open many additional investment opportunities for the company.

Citigroup Inc. (NYSE:C)

Citigroup Inc. provides financial products and services in the following divisions: Global Consumer Banking (as part of traditional banking services to retail clients through Retail Banking), Institutional Clients Group (offering sales and trading services fixed income and equity trading, foreign exchange, prime brokerage, derivative services, equity and fixed income research, corporate lending, investment banking and advisory services, private banking, cash management, financing trading and securities services) and more.

Citigroup Inc. in the fourth quarter of 2021 reported net income of $3.2 billion, or $1.46 per diluted share, on revenue of $17 billion. That means net income of $4.3 billion or $1.92 per diluted share on revenue of $16.8 billion.

Net income of $3.2 billion was down 26% from the prior year period and earnings per share of $1.46 was down 24% from the prior year period .

For the full year 2021, Citigroup reported net income of $22 billion on revenue of $71.9 billion, compared with net income of $11 billion on revenue of $75.5 billion. dollars in 2020.

Ready for an interest rate hike?

Might as well be prepared – the Fed won’t hold back this year, so bank stocks should be your answer. If you have already invested in the companies we have listed above, fear not. Hundreds of other bank stocks can carve out a place in your portfolio. Do your homework before buying by checking the fundamentals and you will be set.