Jim Cramer recaps 4 major banks’ earnings reports

CNBC’s Jim Cramer shared his thoughts with investors on Friday on the big banks that reported earnings this week.

“If the entire market hadn’t already roared yesterday I think we could have had a nice rally in response to those numbers, I said.

JPMorgan Chase, MorganStanley, Wells Fargo and Citigroup released its latest quarterly results on Friday. Here’s Cramer’s take on the banks’ recent quarters:

JPMorgan Chase beat Wall Street expectations for sales and earnings, helped by Federal Reserve rate hikes. Cramer said he was surprised the bank had a solid quarter as CEO Jamie Dimon had warned that the US economy was likely to enter a recession by the middle of next year.

However, Cramer said he still expects the bank to get a boost from rising interest rates.

“Banks make fortunes when the Federal Reserve raises interest rates because they can take your deposits, which they pay next to nothing for, and then invest them in short-term government bonds for a much higher risk-free rate of return.” he explained.

The bank beat in profit and revenue last quarter but saw its bottom line fall as a result of its decision to increase its loan loss reserves.

Cramer said he likes the stock because the company has higher interest-rate risk than most of its peers, making it attractive in a high-yield environment. And while the risk of higher interest rates is people losing their jobs and defaulting on their obligations, which would result in a higher percentage of bad loans, Wells Fargo’s strength in its net interest income is more than enough to offset the damage from its bad loans , according to Cramer.

“I remain convinced – management is doing an incredible job – I think the story will only get better as interest rates go up,” he said. “Buy Wells Fargo.”

Cramer said he believes the market overreacted to Morgan Stanley’s loss of earnings and revenue in the third quarter. The bank’s shares fell 5%.

While acknowledging that the quarter was difficult, Cramer maintained that he thinks the stock is a buy and highlighted the company’s generous dividend and share repurchase program.

“I think Morgan Stanley can eventually be successful once the markets level out, but until then you have to be patient on this.” he said.

Cramer said he’d rather own the other banks than Citi, which topped sales and earnings last quarter but posted a 25% drop in earnings. The company’s shares rose 0.65%.

“We’ve seen Citi rally in response to gains a number of times. … And then do you know what happened? Gains faded quickly and the stock immediately fell again,” he said.

Disclaimer: Cramer’s Charitable Trust owns shares in Morgan Stanley and Wells Fargo.