November 02, 2022
Major banks reported earnings to close the week, marking the beginning of Q3 2022 earnings season.
The result? An unexpectedly positive one:
- Five of the eight banks which reported this week are green on the week, a sign of confidence from investors.
- There was a recurring theme, though: major banks put aside cash to prepare for loan losses. Losses can rise during times of recession as people fail to pay their loans.
- Even in the case that things were negative, some investors found bright spots. Take Blackrock for example: it was down more than 4% when the market opened on Thursday. From there, it rallied more than 9% off those lows to close the week.
- Wells Fargo, Citibank, and US Bancorp were among names which got some love, too. They bested analyst estimates while putting aside cash for losses.
- However, all banks saw lift from higher interest rates — JPMorgan Chase was one of the biggest benefactors. Nearly half of its $33.5 billion revenue in the quarter came from net interest income.
Not everything was positive, though:
- Investment banks, like Morgan Stanley, across the board saw losses in investing and deal flow mergers & acquisition. Morgan Stanley fell close to 5% on the news.
- First Republic Bank took beat estimates, but its net interest income actually missed — which ran contra to what was expected from financial institutions as interest rates expand the fastest that they have since ‘08.
- Some evidence suggests that Americans are feeling the heat of rising prices. Some banks such as Wells Fargo saw higher credit revenue — matching the pace of inflation YoY.
It’s hard to draw conclusions on whether or not bank earnings are a massive success without a larger sample, which we will pick up early next week.
However, as we do march into Q3 earnings, we’ll be on the lookout for warnings. Analysis significantly dampened their expectations for earnings just weeks before the season tee’d off — and whether it will be a giving or taking one has yet to be seen.