JPM Earnings: What Report Says About Consumers, Anthropic & Corporate Lending

Sam (0:02)

Joining us to do that is Ken Leon, Director of Equity Research over at CFRA. Ken, good morning to you. So mixed reports, mixed reactions as well, pretty much aligns with the commentary we've been getting into earnings season though. What were some of your biggest takeaways?

Ken Leon (0:16)

Yeah, it's great to be here. So I was expecting more of a bounce in some of these stocks, particularly Goldman Sachs and Citi.

The reason is these stocks are oversold since really middle of August. It's kind of a reconciliation of some really key macro factors. One, of course, would be the impact of rising rates. Two would be really coming off a historic record Q2 on investment banking and Q3 were strong. When you go through all the metrics of these banks, I think it was a solid quarter. But what we're seeing is the market or investors are not flowing back and buying these stocks right now.

I still see it as an opportunity because as we go ahead to Q4, is expected to finish strong for all these banks. And we got some indication with guidance that they will be able to deliver.

Sam (1:19)

Right. I want to pick up on that because let's take JPMorgan Chase, for example. I mean, I mentioned this to KG earlier. We got the initial report. We saw a sell off pre-market. But then, oddly, we got 45 minutes later, the guidance, which was somewhat delayed and the stock started to turn around. So for all the worry initially, particularly on the FIC category, I don't know. They seem to think that there's obviously, I guess, less cloudy skies on the horizon. So what do you make of what we've seen as far as the reaction here? Because Goldman's come up from, like, what, 4 percent earlier.

Ken Leon (1:55)

Yeah. So it's a great point. Why wouldn't you put guidance in the release versus the uncertainty that maybe things may be changing for the worse, which they're not? So I think with JPMorgan, they really, as a balanced bank between traditional banking and capital markets, asset management did okay. Goldman had exceptional results. And the big issue really for Goldman and those banks participating in the equity market for IPOs is that the pipeline still looks good. You know what's surprising here is that when we look to Q4 and that's where the market's looking, there really wasn't any color in terms of Anthropic going public, filing an S1 hopefully this month.

But there was a lot of questions from analysts on AI. Is it a disrupter? Is it a positive contributor? Perhaps to margin improvement and earnings?

You know, so there were more questions on AI than I think what's most important is the opportunity of Anthropic, which was $400 million of investment banking fees and SpaceX to Goldman and Morgan Stanley alone.

Sam (3:10)

Maybe we'll see a bit of a pickup once we start to get a little bit more clarity on that if it does indeed go this quarter. What did you make of what these banks told us about the consumer this morning? Can I mean Citi, US consumer cards, missed, but Wells Fargo seems to see resilient quality here, outperforming expectations, particularly on credit.

Ken Leon (3:31)

Yeah, so of course, we looked very closely at all the metrics impacting credit quality, loan risk, provisions were modestly higher for the consumer.

We are seeing reserves build particularly related to credit cards, but the transaction volumes are slowing down. That's indication that US households are facing higher cost of living inflation. The likelihood is that it will not be the catalyst really for earnings performance. It's going to be flat, which it was in Q3.

Personal loans, mortgages, they were okay. Likewise, for small business. And we have not had in two years on the corporate lending side, traditional commercial loans, any industry that is a distress problem for these banks. That's a pretty good record. You know, so overall, it's more the neutral zone. And that's why I really lean into two areas that supports our buy recommendations. One is the capital markets. And two would be the durable recurring fee income coming from asset and wealth management.

Sam (4:43)

All right, Ken, really enjoyed the breakdown. Thanks so much. Really busy morning here. We've got to wrap things up. Ken Leon from CFRA, joining us there on the banks. Let's trade JPMorgan Chase now with Tom White, host of Fast Markets. So Ken seems to be a little bit surprised with the reaction. We flip flopped a lot of these names this morning. Just walk us through an example trade on JPM.

Tom White (5:03)

Yeah, you mentioned it, Sam. You see those headline numbers on EPS and Revenue both missing, a rare miss for JPMorgan Chase on these numbers. It has pulled back about 8% from its record highs, but now in positive territory on the session, but starting to consolidate here a little bit. You mentioned, I mean, the stock was down 3% in the pre-market and then jumped when they came out with fiscal year net interest income of about $106 billion estimated versus about $105.3 billion. The street anticipated, so that reversed the stock, but it still feels like it's consolidating between its 50 and 200-day simple moving averages at this point. So I looked at a strategy that's really short-term positioning that just takes advantage of maybe some further consolidation in the stock. Looked at a short iron condor. We sometimes call this a short iron butterfly because I'm selling a call and put on the same strike.