Bank earnings season is in full swing. The US consumer carried the day as the major consumer banks turned in strong loan growth and card spend. Trading and banking fees were lower due to weaker business sentiment and trade flares.
Credit card spend at JPM rose 11% to $193 Bn, while balances rose 8% to $157 Bn. The JPM consumer bank continues to turn in a blistering ~30% ROE – enviable by any bank standard — while growing loans, revenues, and keeping charge-offs in check.
Citi’s card spend rose 8%, while balances increased 3%. The main takeaway is there is plenty of opportunity for FinTech’s to refinance prime card debt.
Goldman turned in the strongest stock performance YTD (+30%) and on earnings day despite a YOY contraction in revenue and earnings.
One insight from the earnings call related to Marcus:
“Year-to-date, the total pre-tax cost from Marcus, Apple Card, and our new transaction banking platform is approximately $275 million, resulting in a drag of roughly 60 basis points on our ROE. Our cumulative pre-tax loss for these businesses from the inception of each, through the second quarter was approximately $1.3 billion, which has been embedded in the performance of the firm. As these businesses scale over the coming years, this drag should not only reverse but become an accretive contributor to the firm’s ROE.”
Looking back over the past few years, one open question remains – “Given what we know now, would it have been better to build Marcus from scratch or buy an existing FinTech?”.
LendingClub’s marketcap for instance is $1.3 Bn – the same as the net investment in the GS Marcus platform – and its annual origination volumes are 4 to 5x higher.
FinTech stock prices have lagged while major indices are near all-time highs. We would not be surprised to see greater M&A activity while FinTech asset prices are “on sale”.
Summary of Bank Earnings
On virtually every metric, JPM is outpacing its rivals and digital upstarts – and growing at a faster clip.
Source: PeerIQ, SEC Filings
Goldman Sachs’ revenue dropped 2% to $9.46 Bn along with earnings which fell 6% to $2.42 Bn
- Investing and lending net revenues reached an 8 year high
- No breakout or explicit focus on Marcus in the earnings report
J.P. Morgan continues to lead major banks in earnings
- Highest ROE, revenue growth, and earnings growth across its peer group
Below is a snapshot of the performance of JPM’s consumer banking unit led by CEO Gordon Smith:
Source: PeerIQ, JPM Investor Relations
Citigroup, the most international U.S. bank, delivered moderately positive results across the board in revenues, earnings, and loans
- The better than expected earnings can be owed to a one-time gain on its stake in Tradeweb, an electronic bond-trading platform that went public in April
- Unstable trade relations weighed down on business lending (down 7% in Asia YoY)
Wells Fargo beat profit forecasts this quarter, but shows signs of downturn after Tuesday’s earnings release
- Beats in revenue and earnings were overshadowed by low net interest income that fell short of a $12.1 Bn forecast
- After the release, the stock fell 3%, its worst day since March
- CEO role remains unfilled
- Lending to nonbank lenders is growing — maybe too much (American Banker, 7/5/19) Even though non-bank lenders make up a large portion of risky loan makers, they get their funding from regulated banks
- Mnuchin says Facebook cryptocurrency needs safeguards against money laundering (Reuters, 7/15/19) Treasury warns Facebook that it must develop protections against such laundering before acquiring approval for Libra
- Goldman Sachs earnings blow past Wall Street on strong investment banking, equity trading (CNBC, 7/16/19) Despite drops in revenue, GS exceeds expectations, stock jumps 1.2%
- European Challenger Banks Launch U.S. Invasion – Is America Ready? (The Financial Brand, 7/15/19) Challenger banks N26 and Monzo entering US banking market with capital and digital
- HomeLight acquires Eave, sets out to help every homebuyer become a cash buyer (Homelight, 7/9/19) Eave combines with HomeLight – providing liquidity to cash buyers
- Cross River Names Global Finance Veteran Melissa Ballenger As CFO (Business Wire 7/16/19) From focused on providing banking services for tech company hires State Street Corp tech veteran as CFO
- Are Extraterrestrials Patriotic? (The Economist) Historical data shows these sightings seem to spike when everyone is looking up at the sky.