Volatility Boosts Bank Earnings & SpaceX’s Mobile Push

John Crotteau (0:02)

SpaceX and Starlink make a purchase of scarce communication spectrum. Should the legacy mobile carriers be worried, we have the latest.

Hanna Horvath (0:08)

And Big Big Earnings are out this week. What are they saying about the economy?

John Crotteau (0:12)

For Tuesday, October 13th, it's Brew Markets Daily. I'm John Crotteau.

Hanna Horvath (0:15)

And I'm Hanna Horvath. Let's get moving and groovin.

John Crotteau (0:20)

Hanna, it is great to have you in studio just in time for the official start of the Q3 earnings season. Happy to have you here to give us the numbers and more broadly, where they fit in the macro economy. Hanna, take us there.

Hanna Horvath (0:34)

Yes. So as you just said, big bank earnings officially kicked off this morning. And John, we have a lot to work with. JPMorgan, Goldman Sachs, Citi and Wells Fargo all reported before the bell. And the simplest way to summarize the morning is this. Wall Street is making a ton of money, but today's results tell us a lot about what parts of the economy are thriving and what parts are starting to feel the pressure of expensive money.

John Crotteau (0:56)

Okay. So let's start with Goldman because that was probably the cleanest beat of the morning.

Hanna Horvath (0:59)

Yep, Goldman reported a massive profit surge of 29%, which easily outpaced Wall Street estimates. But the number that really jumped out to me was the equity trading revenue up 72% to $6.4 billion.

So why is business booming right now? Let's think back to the quarter we just had. Oil prices are spiking, treasure yields were surging, the Fed hiked rates, and there were a couple of weeks where investors were just debating if AI was going to wipe out humanity. So essentially just lots of volatility, which makes the markets move around a lot. Clients want to move their money around a lot. And so those trading desks are going to make money off of all that activity.

John Crotteau (1:32)

So market chaos does not necessarily mean bad business for Wall Street. Sometimes the uncertainty is the business.

Hanna Horvath (1:38)

Exactly. And Goldman wasn't just making money from this frantic trading. Investment banking fees were also up 21% and advisory revenue hit a record. Goldman has also worked on some enormous transactions this quarter, including Intel's $23 billion stock offering and NVIDIA's $3.5 billion investment in media tech.

Even with these high interest rates, it's clear that corporations are still raising money, still making acquisitions and investing.

John Crotteau (2:01)

Okay, so Wall Street facing businesses are thriving. But what happens when you pivot over to the traditional consumer facing lending giants?

Hanna Horvath (2:09)

Yeah, let's take JPMorgan, which posted its first profit miss in almost three years. Their equity trading revenue jumped 49%. So again, stock market volatility was great for that trading desk. But fixed income trading fell 4% and investment banking fees slowed 8% from the previous quarter. The bank pointed to deal activity losing momentum toward the end of September, particularly in IPOs. So why is this slowdown happening? The thing about high volatility is that it's kind of a double edged sword. It's fantastic when hedge funds want to trade stock, but corporate executives hate uncertainty. So while traders are kind of making all this money from all that movement, some CEOs are wondering, is this an ideal time to price an IPO or to pull the trigger on a massive deal?

JPMorgan's bottom line was also dragged down by a $658 million realized loss on investment securities. So to put that in context, when market interest rates rise sharply, older bonds paying lower rates become less valuable. So banks can hold on to those securities and wait. But if they sell or reposition that portfolio, some of those paper losses become real.

John Crotteau (3:07)

But JPMorgan also raised its outlook for the interest income, right? So the underlying lending business doesn't exactly look terrible.

Hanna Horvath (3:14)

Yeah. Net interest income, which is basically the money a bank makes from the spread between what it earns on loans and what it pays depositors, rose 6% to $24.7 billion.

Average loans were also up about 10% from a year ago. So it kind of seems like despite these high treasure yields and expensive borrowing costs, consumers and businesses have not stopped borrowing enough to seriously damage JPMorgan's core banking business. You know, my read on kind of all of this is the economy is still creating plenty of demand for credit, but higher rates and uncertainty are making certain transactions harder to get done.

John Crotteau (3:47)

OK, so we've got two banks left from this morning. What did Citi and Wells Fargo have to say?