When JPMorgan Chase & Co. JPM,
After announcing fourth-quarter results on Friday, CEO Jamie Dimon said the US economy is “resilient,” with management saying a soft landing is likely. Bank of America Corp. executives also said they expect a soft landing, while Wells Fargo & Co. said consumer spending “remains strong.” Despite a chaotic and “very disappointing” fourth quarter, Citigroup also said that underlying growth was actually “very strong” across its business.
Now, next week, we'll see whether the big banks' wary, distorted optimism about consumers, markets and businesses trickles down to the rest of the financial industry.
Arch-rivals Morgan Stanley and Goldman Sachs report fourth-quarter results next week. Financial heavy hitters, such as credit card giant Discover Financial Services DFS, also reported…
BNC Financial Services Group Limited BNC,
Interactive Brokers Group IBKR,
Charles Schwab Corporation. Southwest,
But those financial institutions will report their results after what Edward Jones analyst James Shanahan described as a “noisy” quarter and “very weak across the board” for banks that reported results on Friday.
“Debit and credit card spending data published by JPMorgan and Bank of America indicate that consumers were still spending in the fourth quarter,” Shanahan told MarketWatch. But he added: “The growth rate and purchase volumes on credit and debit cards have certainly slowed.”
Among the noise and quiet: Bank of America's profits fell in the fourth quarter, as trading revenue and lending income declined. Wells Fargo said it has set aside more money to cover potentially deteriorating credit, as higher rates continue to pressure consumers trying to pay their bills. Citigroup was affected by the shocks to the economy in Russia and Argentina, and said it would cut 20,000 jobs by the end of 2026 amid greater regulatory renewal.
Some analysts expect banks to cut costs this year, amid pressure to adopt more technology. They expect volatility in markets and deal-making as investors wait for more clarity on potential interest rate cuts from the Federal Reserve, which has been manipulating those rates in an attempt to steer the economy through a two-year period of inflation. They prepared for the repercussions of conflicts abroad and any chaos awaiting the US presidential elections.
JPMorgan said on Friday that it was planning six interest rate cuts from the Federal Reserve this year, which would impact net interest income, a measure of a bank's ability to profit from interest earned on loans. But these interest rate cuts are no guarantee, and speculation continues about how far interest rates would have to fall to actually help consumers.
Meanwhile, concerns about commercial real estate lending persist, after more people abandon their offices to work remotely. Despite the market's rally at the end of last year, trading revenues – on which both Morgan Stanley and Goldman Sachs depend – have been disappointing elsewhere. Shanahan said investors may have been reluctant to sell during the rally and the impact on taxes. There may have been seasonal factors associated with the holidays as well, he said.
“You don't have a lot of investors or traders at their desks,” he said. “Business tends to slow down a bit.”
This week in earnings
Twenty-three companies, including two Dow Jones companies, are scheduled to report quarterly results this week, according to a FactSet report released Friday. Outside of the financial industry, trucking and logistics company JB Hunt Transport Services Inc. JBHT,
Results reports Thursday, as Wall Street awaits a larger rebound in shipping demand after the pandemic-fueled buying boom fades. There will be “little tolerance for further deterioration,” Citibank analyst Christian Weatherby said in a research note on Friday.
Call to put it on your calendar
Morgan Stanley, New Leadership: MS Morgan Stanley,
Tuesday's fourth-quarter results will be the bank's first under the leadership of its new CEO, Ted Beck, whose term began Jan. 1. He told CNBC in October that there would be “no change in strategy” for the bank, which built its wealth management business under its former CEO, James Gorman, in the wake of the 2008 financial crisis.
But next year, and the potential volatility that may come with it, will also be a test of how well the no-change strategy works. Mergers, acquisitions and underwriting activity will “explode” once the Fed signals it will stop raising interest rates, Gorman said in October, as companies shake off concerns about the economy and return to dealmaking. But others weren't so sure.
Sean Ryan, senior vice president of banking and finance at FactSet, said in a report this month that he expects investment banking revenues to remain weak, but still worth watching, as banks try to predict the Fed's path to lower interest rates, making it easier to… Companies borrow money.
“Management's comments regarding M&A outlook may be particularly interesting, given the cross-currents of cheaper financing but higher valuations, and increasing market belief in a soft landing scenario,” he said. “Wealth management revenues will benefit from the impact of the year-end rally on both equities and fixed income (assets under management), as well as from more companies weathering the worst of the cash sorting headwinds.”
Analysts may also end up trying to parse signs of differences between Beck and his predecessor that emerged during Morgan Stanley's earnings call. After Morgan Stanley spent billions in recent years to buy the e-commerce brokerage, investment firm Eaton Vance and other companies, Shanahan said analysts will have questions about the growth.
“Will it be more focused on Morgan Stanley's existing franchise and brand to grow organically?” He said. “Or will he pursue a similar or perhaps more aggressive acquisition strategy as CEO?”
Number to watch
Goldman Sachs results: Morgan Stanley's competitor Goldman Sachs GS,
Reports also on Tuesday. The results will come after a rally in the stock that began in October, and what BMO analysts described last week as a difficult year for Goldman, as recession fears continued to weigh on the economy and wars in Ukraine and the Middle East kept investors wary. But these analysts downgraded the stock, citing its exposure to fluctuations in trading revenues and investment banking fees. That exposure could increase, they said, as it gains share in those sectors and scales back its consumer lending ambitions.
“Unfortunately, in the current environment, there is no perfect stock story,” the analysts said.
