🏦 US Banks: Uncertain Year

Inflation and geopolitical risks loom large

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In case you missed it:

• ✈️ Boeing vs. Airbus

• 🏎️ Formula 1 Economics

• 📊 Earnings Visuals (3/2024)

• 🔷 Rubrik IPO: Key Takeaways

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As always, earnings season kicks off with US Banks.

The nation’s top lenders set expectations for the current macro environment.

You can expect an avalanche of visuals in the coming weeks as we learn how businesses performed to start 2024. Stay tuned for Netflix this Friday!

So, what did we learn from the big banks?

Today at a glance:

• The Big Picture

• JPMorgan: Cautious Outlook

• BofA: Investment Banking Surprise

• Wells Fargo: Regulatory Progress

• Morgan Stanley: Wealth Momentum

• Charles Schwab: New Asset Surge

• Goldman Sachs: Leadership Scrutiny

• Citigroup: Transformation Push

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The Big Picture

Here’s an updated look at the largest US banks by market cap.

Visual by App Economy Insights

JPMorgan CEO Jamie Dimon explained:

“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces.”

In particular, Dimon referred to the wars in Gaza and Ukraine, the persistent inflation worldwide, and an unclear timeline for interest rates.

As a reminder, banks make money through two main revenue streams:

1. 💵 Net Interest Income (NII): The difference between interest earned on loans (like mortgages) and interest paid to depositors (like savings accounts). It’s the main source of income for many banks and depends on interest rates.

2. 👔 Noninterest Income: The revenue from services unrelated to interest. It includes fees (like ATM charges), advisory services, and trading revenue. Banks relying more on noninterest income are less affected by interest rate changes.

Here are the major developments in Q1 FY24:

• 📉 NII Outlook Shifts: While net interest income drove substantial profits in 2023, Q1 earnings signal a slowdown. Banks forecasted NII declines or more modest growth as the rate hike cycle potentially ends.

• 📊 Mixed Results: Investment banking showed a resurgence for some banks like Bank of America and Goldman Sachs, while others saw continued weakness compared to the 2021-2022 boom.

• 💰 Focus on Wealth Management: This area showed consistent growth across banks like Morgan Stanley, Schwab, and Goldman Sachs, highlighting the increasing importance of fee-based revenue streams.

• 💳 Consumer Lending Caution: Some banks are increasing credit loss provisions, particularly for credit cards and wholesale loans, indicating a more cautious approach to consumer lending.

• ⚙️ Strategic Transformation: Ongoing restructuring initiatives are a common theme. Banks like Citigroup and Wells Fargo focus on streamlining operations and exiting less profitable businesses for long-term efficiency.

• ⚖️ Regulatory Challenges: Banks continue to address regulatory scrutiny from past issues, with ongoing remediation efforts and adapting to evolving risk management requirements.

• 🏦 FDIC Assessment Impact: For banks with assets over $5 billion, the Federal Deposit Insurance Corporation (FDIC) imposed a fee in the aftermath of the Silicon Valley Bank and Signature Bank debacle. They’ll collect the fee over eight quarters starting in Q1 2024, creating a short-term headwind on profits.

Here is the Q1 FY24 performance Y/Y at a glance.

Visual by App Economy Insights

Let’s visualize them one by one.