Markets were mixed on Friday as the S&P 500 was down 0.1% while Toronto was up 0.1%.
Linamar was up 2.3%.
The two Brookfield Office Properties rate reset preferred shares on our list were up modestly once again, but also once again on thin volume.
There were some very interesting results from the large U.S. banks that have reported Q1 earnings. It appears that loan and other interest earning assets of these banks has repriced quite quickly to the new higher rates. Meanwhile it seems they have not had to move their deposit rates up as quickly.
I looked at Wells Fargo and found that its NET interest income (after deducting deposit interest) was up by a huge 45% year-over-year. I was interested to see what the increase in interest income (before deducting interest expense) was but that has not yet been released. There are two implications that I see here 1. Borrowers are paying a LOT more interest and it’s unclear what problems that may lead to. 2. Wells Fargo’s earnings per share were up sharply. It seems to me that Wells Fargo is likely a very good investment at its current price. It’s trading at only 11% higher than book value and Yahoo Finance indicates that its forward P/E ratio is 8.3.
I also see that J.P. Morgan’s net interest income soared 49% and that its net interest margin increased from 1.67% to 2.63%. That is a stunningly large increase in the net interest margin. Overall J.P. Morgan is a lot more complicated than Wells Fargo and I am a lot more familiar with Wells Fargo. I was very tempted to buy some Wells Fargo hares on Friday but did not end up doing so.
With predictions of recession and loan losses, the U.S. banks could certainly face some problems in 2023. But overall, they look like good bets to me and I would go with Wells Fargo because of its simpler business model (not as much exposure to bond trading and capital markets).