Bank Earnings Begin as Traders Digest Fed Speak

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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies and trends shaping today's complex economy. Plus, global business, finance and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Massar and Tim Stenovec.

Carol Massar (0:33)

As you know, big banks kicking off earning season earlier this morning. JPM, JP Morgan, Goldman Sachs shares. Little change we've seen. Keep in mind, JPM rallied 3% at its intraday high. Goldman rallied 4% at its intraday high. And then, Tim, there's Wells Fargo down about 1.7%, down as much as 3.6% at its intraday low today. Citi dropping back 2% after an earlier 1% gain, but now down roughly about 4%. I just point that out because I just feel like investors have been trying to kind of read the tea leaves or make sense of these reports, it feels like.

Tim Stenovec (1:05)

Well, that'll help us make sense of this. We've got Herman Chan with us, Senior US. Banks Analyst at Bloomberg Intelligence. He joins us here in the Bloomberg Businessweek studio. Here's some of the headlines. JPMorgan Post's surprise drop in fixed income trading revenue. Goldman's equity traders post big haul as credit rates miss. Wells Fargo beats its resilient customers, curtail loan losses. That's just a handful of what we've learned so far today. How would you characterize this group as a whole?

Herman Chan (1:30)

Lots of puts and takes, and you see this in today's trading action. Equity trading was the highlight for the group. Goldman Sachs led, we say Goldman was the gold standard for the third quarter, particularly with equity trading up 72% year over year. JPMorgan also strong on the equity trading front, but fixed income lagged.

The higher for longer rate backdrop, it seems like everybody in the market is coalescing to that view. So there's less trading opportunity on the fixed income side.

Questions on the economy, but credit is still holding up really strong. But there are questions if we're in this higher for longer rate backdrop for an extended period of time. What does that mean for unemployment and the like? So those are the things that the banks are continuing to do.

Carol Massar (2:17)

Herman, when it comes to fixed income, like people say, hey, there's opportunities that we haven't seen in fixed income in a long time. Is that just a case of during the quarter, those opportunities weren't as clear?

Herman Chan (2:27)

Yeah.

Carol Massar (2:27)

Or banks weren't ready to kind of lean into it?

Herman Chan (2:29)

That's right. So we were facing the summer months. So that in itself causes some slowdown in activity. And the banks flagged September as really soft, particularly given the sharp upturn in interest rates. And that just put a lot of folks on the sidelines, and there was less market action because of that.

Tim Stenovec (2:49)

We will hear from Bank of America tomorrow. They're a good view on the consumer. JP Morgan, though, should also be a really good view on the consumer, given the credit card and the banking activity that they have across the country.

Herman Chan (2:59)

That's right.

Tim Stenovec (3:00)

Any commentary there about the health of the consumer?

Herman Chan (3:03)

Yeah, cracks in credit really haven't really formed. We were hoping to hear, we were looking to hear for something in terms of anecdotal shifts and changes in the bank stance that we're seeing really resilient consumer.

Wells Fargo in particular talked about historically low delinquencies on their consumer lending. So that just speaks to the strengths and...

Gautam Mukunda (3:28)

Who are their customers though?

Carol Massar (3:30)

Who are their customers?

Herman Chan (3:31)

Yes. So customers are, you're talking about the growth that's really happening in the auto lending side for Wells Fargo, your typical mortgage, and they're growing their credit card book as well. So those are the typical customers. They're going to be prime, near prime customers. So you're not going to see the bottom part of the K-shape economy for a lot of these things. Where will you see that? Yeah, that's a good question. You'll probably see it more on the fintech side of things, where banks historically, ever since the GFC, have steered away from some of the weaker credit on the consumer side. So you see it in some of the personal lending that's being done by the folks like SoFi and the like.

Carol Massar (4:12)

So JP Morgan's CEO, Jamie Dimon, did say, we're tightening up a little bit on credit, some credit terms have gotten a bit loose. What is he talking about specifically when he says that?