Despite some nice gains in recent days, the banking sector is still far below the level it was at in mid-February. Social distancing measures, millions of new unemployment claims, mortgage deferments, and lower projected growth have hurt earnings expectations for the year. That said, most experts and banking analysts believe the sector is strong enough to weather the storm and eventually return to pre-coronavirus levels.

The largest bank stocks are definitely the best to purchase right now when you consider safety and soundness, and also upside. Here are the three bank stocks that seem stable in the current economic climate and can still generate solid long-term returns.

Outside of a JPMorgan Chase building at night

Image source: Getty images.

 

JPMorgan Chase

JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon was discharged from the hospital in early March after undergoing emergency heart surgery, and the return of his presence is welcome. In his annual shareholder letter, Dimon said he expects the COVID-19 coronavirus pandemic to include a "bad recession." But what seemed to stick was another remark the banking veteran made, saying, "We have the resources to emerge from this crisis as a stronger country."

Dimon is one of the few bank CEOs that was around during the Great Recession in 2008 and helped steer the bank safely out of that crisis. He then helped grow JPMorgan into the largest U.S. bank with roughly $2.7 trillion in assets. There's really not a whole lot to say about the bank that hasn't already been said. JPMorgan is coming off a stellar decade, delivering the largest gain in its stock price out of any of the big four U.S. banks, and it has the most trusted leader in banking.

Bank of America

Bank of America (NYSE:BAC) is another huge bank led by another veteran in Brian Moynihan. Throughout the outbreak of coronavirus, even as its stock price has declined, the bank has been able to show financial strength, namely by hiring 2,000 employees in March and declaring that it would not lay off any employees. All of this comes at a time when many firms have been forced to institute hiring freezes or lay off employees.

The bank also has several lines of businesses that could perform well under the current conditions. For one, it has a thriving small-business lending operation that will benefit from the $350 billion in new lending administered through the U.S. Small Business Administration (SBA). These funds are fully backed by the government, largely disbursed by banks, and will result in fee income for the banks. A few days after the program launched, Bank of America said it had already received applications from 177,000 small businesses for a total of $32.6 billion in financing.

The bank is also well positioned with lots of mortgages that could generate fees from refinancing activity, and a large online brokerage and wealth management division that should generate significant activity as market volatility leads to an increase in trading. 

Wells Fargo

Wells Fargo (NYSE:WFC) may have the longest road back out of these three, but the bank is still uniquely positioned in the current monetary environment. Before the COVID-19 pandemic, the bank was recovering from backlash over a huge scandal in which employees at Wells Fargo created millions of fake bank accounts. The bank was fined billions of dollars, and the Federal Reserve placed an asset cap on the bank until it could prove that it had fixed internal controls.

However, the Fed recently modified the asset cap so the bank could participate in the new SBA lending program -- Wells Fargo is one of the top SBA lenders in the country. Although the relief is temporary and narrow, it could allow the bank to restore some of the public confidence that it lost due to the scandal. Also, the bank has the most residential mortgages of any of the big four banks, giving it lots of refinancing opportunity. Overall, the fundamentals behind the bank's business model are sound; it's really just a matter of when it can get past the scandal and the regulatory restrictions.

It's scary, but also a good time to invest

It's understandable to be scared about investing under current market conditions. There are a lot of unknowns; the market is volatile and the country is facing a global pandemic that is almost unprecedented. But times of uncertainty and huge declines in the market typically turn out to be the best times to invest, and these large bank stocks are as safe as any right now considering the backing they have from the government and the strong amounts of capital they have built up over the past decade.