It might seem difficult to Investing in a bank. They are intricate in a lot of ways. But it’s simple to understand the fundamental concepts that underpin the banking sector and how these companies generate revenue. In light of this, we present an overview of the many sorts of banks, some crucial metrics for investors, and three outstanding, easy for beginners bank stocks.
Table of Contents
The three types of banking enterprises
Business banks:
These banks offer services such checking and savings accounts, auto loans, mortgages, and certificates of deposit to both individuals and companies. Commercial banks primarily generate money by taking out loans to consumers at higher interest rates after borrowing money at relatively cheap rates.
Finance banking:
These banks offer investment services to high-net-worth individuals and institutional clients. Investment banks make money through selling debt instruments, giving merger and acquisition advice, and assisting other businesses with initial public offerings (IPOs). Dealing in stock markets, fixed-income instruments, currencies, and commodities is another source of income for investment banks.
They frequently run asset management businesses and have sizable personal investment portfolios. Investment banking, in contrast to commercial banking, typically fare pretty well during recessions. Investment banking frequently performs more effectively as markets become erratic.
Universal banks:
Banks that operate in both the investment and commercial banking sectors are known as universal banks. Universal banks make up most significant U.S. banks.
Despite the fact that investment banks mostly rely on fee income and commercial banks primarily depend on interest income, universal banks benefit from a healthy mix of the two.
These definitions have definitely been shortened. There are numerous additional ways for banks to make money. For instance, many banks let their clients rent safe deposit boxes, and some of them profit from alliances with other businesses. However, they are the primary means by which banks generate revenue.
Three outstanding bank stocks to watch in 2023
All of the major US stock exchanges are home to hundreds of banks, all with different sizes, locations, and business objectives. Despite the fact that there are many great options for investors, here are three bank stocks that are suitable for beginners and could offer fantastic profits for years to come:
BANK OF AMERICA (NYSE:BAC)
JPMORGAN CHASE (NYSE:JPM)
U.S. BANCORP (NYSE:USB)
Bank of America
One of the most remarkable comeback tales in the post-financial disaster era is that of Bank of America. In the past few years, the bank increased the amount of its loans at rates that were far faster than those of its competitors, and the business significantly boosted its efficiency while expanding its online and smartphone technologies.
With a relatively large proportion of interest-free deposits and great asset quality, Bank of America is well-positioned to gain from higher interest rates during the current US Federal Reserve Bank rate hike cycle.
JPMorgan Chase
The largest bank in the United States based on market capitalization is JPMorgan Chase, which is also by far the most prosperous of the major American banks. The bank is active in almost all facets of commercial and investments banking, and in recent years, it has done quite an outstanding job of growing its credit card and vehicle lending businesses. JPMorgan Chase has also done a great job embracing new technologies and has made some significant investments in startups that provide financial technology.
U.S. Bancorp
The majority of U.S. Bancorp’s revenue comes from loans and other consumer banking products, making it essentially a commercial bank.
U.S. Bancorp’s profitability and income tend to be most predictable as well as stable than those of the other two banks on this list because it is not dependent upon investment banking, which is typically the more unpredictable aspect of the banking industry. Although U.S. Bancorp is heavily reliant on interest income, you shouldn’t be too concerned about its capacity to weather the storm.