In this article, we discuss the top 10 bank stocks in the Goldman Sachs portfolio. If you want to skip our discussion on the banking industry, head directly to Goldman Sachs Bank Stocks: Top 5 Stock Picks.
Fitch Ratingsforecasts that the strength of banking assets in several markets will decline compared to their robust historical performance. Business activities are likely to remain slow, given the inflation and interest rate pressures. However, the potentially positive impact of higher interest rates on net interest margins could partially counterbalance these factors. In some markets, particularly in the United States, stricter financial policies contribute to challenges related to deposit balances, shifts in deposit accounts, and increased deposit betas. Consequently, net interest margins have already reached their highest point or will do so soon, which hinders potential gains. Fitch Ratings provided a ‘deteriorating’ sector outlook to banking industries at the beginning of this year, particularly the United States, Canada, and some regions in Western Europe. Australian banks were assigned a ‘deteriorating’ outlook as well, while Hong Kong banks were allocated an ‘improving’ rating.
Following the March 2023 banking crisis, the International Monetary Fundtrimmed its estimates for the worldwide economy, citing “the recent increase in financial market volatility.” The IMF also revised its forecasts for economic expansion. It first expected a 3.4% growth in 2022, and now the growth estimate stands at 2.8% in 2023. IMF’s latest report said:
“Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled.”
Rising interest rates will elevate losses on securities held by banks and encourage savers to withdraw funds from their accounts, putting pressure on the primary way banks generate profits. Losses related to commercial real estate and other loans have only just started to become prominent for banks, further diminishing their financial performance. Following the collapse of Silicon Valley Bank, regulatory focus will shift towards medium-sized banks due to potential supervisory oversights. According to CNBC, many of America’s 4,672 banks will find themselves merging with stronger counterparts in the coming years, propelled either by market dynamics or regulatory policies. This forecast is based on insights from a dozen executives, advisors, and investment bankers surveyed by CNBC. A recent example is JPMorgan's acquisition of First Republic for $10.6 billion.
On August 8, Moody's downgraded the credit ratings of numerous small and medium-sized U.S. banks, while also placing several prominent banks under scrutiny for potential negative revisions. Major financial entities such as Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers, and Northern Trust are currently undergoing assessment for a potential downgrade. Moody’s analysts Jill Cetina and Ana Arsov commented in a research note:
“U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets. Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks’ commercial real estate (CRE) portfolios.”
Amid the gloomy outlook for the banking industry, we take a look at Goldman Sachs’ Q1 2023 portfolio for the firm’s top bank stock picks. These include JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and American Express Company (NYSE:AXP).
Our Methodology
We used Goldman Sachs’ Q1 2023 portfolio and selected the 10 biggest positions in banks during the quarter for this list. We have mentioned Goldman Sachs’ stake value and the hedge fund sentiment towards each stock as of the first quarter of 2023. The list is ranked in the ascending order of the firm’s stake value in each holding.
The Charles Schwab Corporation (NYSE:SCHW) is a holding company in the savings and loan sector. Its range of services include wealth management, securities brokerage, banking, asset management, custody, and financial advisory. In Q1 2023, Goldman Sachs owned 7.3 million shares of The Charles Schwab Corporation (NYSE:SCHW), worth $385.78 million.
On July 28, The Charles Schwab Corporation (NYSE:SCHW) declared a $0.25 per share quarterly dividend, in line with previous. The dividend is distributable on August 25, to shareholders of record on August 11. For the third consecutive quarter, the company has declared a dividend of $0.25 per share.
According to Insider Monkey’s first quarter database, 87 hedge funds were bullish on The Charles Schwab Corporation (NYSE:SCHW), compared to 74 funds in the prior quarter. D E Shaw is the leading stakeholder of the company, with 12.2 million shares worth $642.7 million.
In addition to JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and American Express Company (NYSE:AXP), The Charles Schwab Corporation (NYSE:SCHW) is one of the top Goldman Sachs bank stocks.
Broyhill Asset Management made the following comment about The Charles Schwab Corporation (NYSE:SCHW) in its second quarter 2023 investor letter:
“After the failure of Silicon Valley Bank (SVB), the market turned a critical eye to the financial sector. Institutional investors sharpened their forensic accounting pencils and hypothesized, “What would happen to The Charles Schwab Corporation (NYSE:SCHW) should its depositors take their money and run?” While this is a helpful exercise, we believe the probability of a run on Schwab Bank is low. Schwab is not SVB. Its deposit base is sticky and fragmented; Silicon Valley’s was not. Less than 10% of SVB’s deposit base was under the FDIC insurance limit, and its core customers were rate-sensitive startups and venture capitalists with fickle cash needs. In contrast, ~80% of Schwab’s deposit base is under the FDIC’s limit and spread across millions of brokerage accounts that keep cash on hand for investment. Rather than spending our time replicating doomsday scenarios, we began by estimating the risk to Schwab’s earnings power should it need to raise the rate paid on deposits in line with competitors. Even under this scenario, we believe our downside is limited. Longer term, we believe Schwab has multiple levers it can pull to monetize the ~ $7 trillion in assets trusted in its custody.”
Itaú Unibanco Holding S.A. (NYSE:ITUB) provides a range of financial services and products to both individual and business entities in Brazil and internationally. The company’s operations are divided into three segments – Retail Banking, Wholesale Banking, and Market + Corporation Activities. Itaú Unibanco Holding S.A. (NYSE:ITUB) is one of the top Goldman Sachs bank stocks. In Q1 2023, Goldman Sachs held a $450.7 million stake in the company.
On August 8, Itaú Unibanco Holding S.A. (NYSE:ITUB) reported Q2 GAAP earnings per share of R$0.87, beating Wall Street estimates by R$0.70. Revenue for the quarter increased 10.2% year-over-year to R$38.83 billion.
According to Insider Monkey’s first quarter database, 17 hedge funds were bullish on Itaú Unibanco Holding S.A. (NYSE:ITUB), compared to 18 funds in the prior quarter. Rajiv Jain’s GQG Partners held a prominent stake in the company, with 16.10 million shares worth $78.4 million.
Ariel Global Strategy made the following comment about Itaú Unibanco Holding S.A. (NYSE:ITUB) in its Q4 2022 investor letter:
“We initiated two new positions in the quarter. Macro-uncertainty also presented us with an opportunity to buy shares of Brazilian financial services company, Itaú Unibanco Holding S.A. (NYSE:ITUB). The company is led by a dynamic CEO, who is utilizing technology in the private banking sector as part of a broader move towards digitization. This strategy is not only reducing distribution costs, but is enabling the creation of new products in high market share areas such as private banking, credit cards, as well as small- and medium-size business lending. An attractive valuation, strong net interest margins and high return on equity are among the attributes motivating our purchase of shares.”
Northern Trust Corporation (NASDAQ:NTRS) is one of the top Goldman Sachs bank stocks on our list. Northern Trust Corporation (NASDAQ:NTRS) is a financial services company that provides global wealth management, asset servicing, banking solutions, and asset management services to individuals, families, institutions, and businesses worldwide. As of Q1 2023, Goldman Sachs holds a $450.7 million stake in Northern Trust Corporation (NASDAQ:NTRS).
On July 19, Northern Trust Corporation (NASDAQ:NTRS) declared a $0.75 per share quarterly dividend, in line with previous. The dividend is payable on October 1, to shareholders of record on September 8.
According to Insider Monkey’s first quarter database, 25 hedge funds held stakes worth $454.6 million in Northern Trust Corporation (NASDAQ:NTRS). John W. Rogers’ Ariel Investments is a prominent position holder in the company, with 2.3 million shares worth $209.2 million.
Wells Fargo & Company (NYSE:WFC) is a financial services firm that offers a range of products and services including banking, investment, mortgage, as well as consumer and commercial financing worldwide. Securities filings for Q1 2023 reveal that Goldman Sachs owned nearly 12.8 million shares of Wells Fargo & Company (NYSE:WFC) worth $478.14 million, representing 0.1% of the total securities.
On July 25, Wells Fargo & Company (NYSE:WFC) declared a $0.35 per share quarterly dividend, a 16.7% increase from its prior dividend of $0.30. The dividend is payable on September 1, to shareholders of record on August 4. The board of directors at Wells Fargo also approved a new program for repurchasing common stock, with a maximum value of $30 billion.
According to Insider Monkey’s first quarter database, 78 hedge funds were bullish on Wells Fargo & Company (NYSE:WFC), compared to 87 funds in the earlier quarter. Boykin Curry’s Eagle Capital Management is a significant position holder in the company, with a stake worth nearly $934 million.
Here is what Tweedy, Browne has to say about Wells Fargo & Company (NYSE:WFC) in its Q1 2023 investor letter:
“The Funds received very little in the way of return contributions from many of their financial, energy, media, and healthcare holdings. While it would appear that a crisis was avoided by the quick intervention of bank regulators in the US and Switzerland, some uneasiness still remains in the global banking community. This turmoil couldn’t help but have a negative impact on investor sentiment and in turn on Fund bank holdings such as Wells Fargo (NYSE:WFC).”
Citigroup Inc. (NYSE:C) is a diversified multinational financial services holding company that specializes in foreign exchange, prime brokerage, corporate lending, investment banking and advisory, private banking, cash management, trade finance, and securities services. In the first quarter of 2023, Goldman Sachs held a $487.2 million stake in Citigroup Inc. (NYSE:C).
On July 25, Citigroup Inc. (NYSE:C) declared a $0.53 per share quarterly dividend, a 3.9% increase from its prior dividend of $0.51. The dividend is payable on August 25, to shareholders of record on August 7.
According to Insider Monkey’s first quarter database, 79 hedge funds were bullish on Citigroup Inc. (NYSE:C), compared to 81 funds in the earlier quarter. Warren Buffett’s Berkshire Hathaway is the leading stakeholder in the company, with 55.2 million shares worth $2.59 billion.
Citigroup Inc. (NYSE:C) is one of the top Goldman Sachs bank stocks, just like JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and American Express Company (NYSE:AXP).
Here is what Diamond Hill Long-Short Fund has to say about Citigroup Inc. (NYSE:C) in its Q1 2022 investor letter:
“Shares of Citigroup declined in the quarter as investors became increasingly negative on capital markets activity. The company is also continuing to divest certain consumer banking geographies which may be dilutive to earnings in the near term.”
