Big banks reporting for duty

Three of the tastiest bits from JPM's big reveal to kick off an upcoming earnings bonanza

• Big, bell-weather banks reporting for duty

• JPM (and Wells and Citi) dropping knowledge bombs that things are . . . more of the same, and that’s pretty good

• march towards zombiehood is progressing (kind of)

• investment bankers making bank (but it’s no cause for excitement)

• credit cards are deteriorating (but it’s no cause for alarm)

• private credit: too much money chasing too few deals, or just sour grapes?

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Big banks reporting for duty (sort of)

Three big banks reported last week (Wells Fargo, Citi, and JPM) and Random Walk poked around a bit for any juicy tidbits.

Banks are interesting because they obviously have pretty good insights into the health of both consumers and businesses. They also took the biggest hit from rising interest rates, and there are some open questions about what the banking business looks like, in a higher-for-longer climate. The very short version is that cost of capital (i.e. deposits) have gone up, but banks are yet to find a market for even higher yielding loans, so do they figure it out, or do they just get progressively less profitable (but also safer?).¹

Anyways, no screaming new insights yet, but here are some choice excerpts from JPM’s earnings that touch on a few themes:

• bank profitability is an ongoing issue,

• credit quality is normalizing (hopefully); and

• the competition (private credit) is competing.

Banks still not making a ton of money on lending (but investment banking fees did ok).

Consistent with the Random Walk theme, lending growth, or really interest revenue growth, remains pretty uninspiring.

The biggest lift to JPM’s bottom line, however, was investment banking, which is a smaller portion of the overall pie, but was a standout YoY:

JPM

46% YoY increase in dealmaking fees.

So, that’s good, and probably a bit surprising, given the lack of big IPOs, buyouts, and M&A, that typically drives fees.

Indeed, JPM’s CFO was certainly pleased with the results, but gave “important caveats” that the numbers could be a bit deceiving:

Lots of fees, driven by refinancing mostly, but actual deal activity was still pretty muted.

Oh, and some impossible marks, holding things up.

The CFO did note some good chatter, but chatter is not something you can take to the bank, except in this case, where chatter is coming to the bank, but figurative truths are more important than literal ones, for present purposes.

OK, so tl;dr more of the same. No exits for private capital, but some refis, and that’s a meal ticket, for now.

Kudos to JPM for making lemonade outta lemons, but the trend towards “boring” (or zombie) remains largely on-trend, albeit very slowly.

Same deal with Well Fargo, for those keeping score at home: