The Most Wonderful Time of the Year
It might be winter in the Northern hemisphere, but the only season me and my homies care about is the earnings szn.
The party got started on Friday with some of the largest US banks dropping their latest figures, blessing us with data, and making my job of finding content to write about a whole lot easier.
In an attempt to minimize their own individual scrutiny, the big banks like to drown us in data all at once, hoping we won't notice that one line item that could lead to another GFC. Fingers crossed, that's not the case here, but everyone from J.P. Morgan to BofA to BlackRock came out swinging.
While they're for sure swinging for the fences, there's certainly no Aaron Judge to be found. Revenues and net incomes nearly beat across the board, but not by much, driving Wall Street's general "meh" response. Here's a quick look at the basics:
- JPM → EPS: $3.57 act. vs. $3.11 exp., Revenue: $34.5bn act. vs. $33.9bn exp.
- BofA → EPS: $0.85 act. vs. $0.78 exp., Revenue: $24.5bn act. vs. $24.1bn exp.
- WF → EPS: $3.57 act. vs. $3.11 exp., Revenue: $19.6bn act. Vs. $19.8bn exp.
- Citi → EPS: $1.10 act. vs. $1.18 exp., Revenue: $18.0bn act. Vs. $17.9bn exp.
But as always, the devil is in the details. A lot of eyes were immediately drawn to loan loss provisions, cash piles that banks hoard for when you miss your car payment(s). Basically, it quantifies exactly how scared banks are. JP, for one, beefed this up nearly 50% from $1.54bn to $2.3bn hardcore while saying that a mild recession is now the firm's "central case."
While that's not ideal, we love to hear that in comparison to Dimon's "economic hurricane" freakout rant from last year.
Arguably the most important part, however, is a bank's net interest margin, aka the spread between what they make from lending activities and what they pay you in deposits.
As I'm sure you noticed, your deposit rate is moving a whole lot slower than JPow is. Right now, the nation's average is a diabolical 0.22%, which is still more than 3x last year's miserable 0.06% and 2x the long-term average of 0.09%. But damn, it really makes you miss the definitely-not-fake-or-scammy 100% or 1,000% rates some crypto projects offered.
So with those deposit rates moving slower than the line at the DMV, net interest margins (NIM) jumped pretty much across the board. Wells Fargo, the silver medalist in consumer banking (behind Chase ofc), saw NIM spike to 3.1% from 2.1% last year. Despite that, the apparently slow-reading skills of investors gave bank stocks a scare in the morning, with Wells falling 3.7% by 10 AM. But once those mouthbreathers got to the NIM line item, the bottle started popping, and $WF finished up 3.3%
And although it's not technically a bank, taking a peek at BlackRock's $8.6tn of assets and their flows is like staring into the 401(k)s of every US investor all at once. In short, they are still scared, with a net of $15bn in long-term retail holdings leaving the firm's products.
Hate to make you apes read so much, but with bank earnings, you gotta let the party run a little long. Don't worry, though; we got plenty more coming our way today when Morgan Stanley and Goldman drop.
Stay tuned for part 2.
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