| US Bank Earnings Bonanza |
| Goldman Sachs (GS.NYSE) Goldman Sachs earnings did not fare as well as the other banks — second-quarter profit fell -58% from last year to $1.22 billion, or $3.08 a share, on steep declines in trading and investment banking and losses related to GreenSky and legacy investments, which sapped about $3.95 from per share earnings. Revenue fell 8% to $10.9 billion. The company disclosed a $504m impairment tied to GreenSky and $485 million in real estate write-downs. Those charges flowed through its operating expenses line, which grew 12%. Unlike more diversified rivals Goldman gets the majority of its revenue from volatile Wall Street activities including trading and investment banking – avoiding direct benefits from higher interest rates. That can lead to outsized returns during boom times and underperformance when markets don’t cooperate. Prefer buying GS when it trades below book — wait on this. |
Charles Schwab (SCHW.NYSE)
Strong result for Charles Schwab, with earnings of 75 cents in adjusted earnings per share on $4.66 billion in revenue. Analysts surveyed by Refinitiv estimated 71 cents per share on $4.61 billion of revenue. We’re buy rated on the stock, which has returned 28% for us in the model portfolio after it was sold off heavily in the regional banking “crisis”. Clients have largely realigned cash (i.e. to money market funds) with client cash movement down 80% compared to the quarter previous. This is the key metric we’re looking for – a lot of analysts were predicting investor’s flight out of Charles Schwab and into higher yielding money market funds; in practice, the company has seen the worst of its “deposit flight risk” pass and retains a highly liquid book of short term bonds (unlike, say, SVB or First Republic). The company has said that it expects $500 million of expense savings this year in addition to $500 million next year that’s related to the TD Ameritrade integration. Management also said expenses may be flat or even lower in 2024 compared with 2023. Was very oversold, now just looks like “value”. Retain BUY. Has gained +28% since we added into the US model portfolio.
Morgan Stanley (MS.NYSE)
Morgan Stanley reported better-than-expected earnings per share for the second quarter of 2023, coming in at $1.24, better than market expectations of $1.15. Revenue also topped expectations, of $13.08B, clearing $13.46B. Earnings are trending downward from its peak at $2.18B, down -13% from last year on lower trading earnings, which was offset by wealth management earnings and net interest income.
JP Morgan (JPM.NYSE) JPMorgan reported a strong earnings beat – profits up 67% YoY. Net interest income sat at $21.9B (up ~44%). The big contributor here was the bank’s purchase of First Republic for a steal earlier in the year. EPS sat at $4.37 per share (vs. analyst estimates of $4.00) while the bank put aside $2.9B for credit losses. We continue to be buy rated on JPM.
The major bank shares are up slightly this year, compared with the about 20% decline of the KBW Bank Index, which is largely due to regional bank sell-off while major “too large to fail” banks are holding up strongly”. Our preference remains JPM and SCHW.
