Making sense of the markets this week: July 23, 2023 – MoneySense

High interest a boost for banks’ earnings?

With U.S. banks and some of the tech-heavy hitters kicking off earnings season this week, there’s no shortage of market news. Let’s dive in! 

Much like what we saw last year, the typically boring retail bank profits continue to soar, whereas the flash and panache of investment banking divisions continues to wither in the wake of decreased IPOs and revenue-generating commercial activity. (All values below are in U.S. currency.)

JPMorgan saw 44% gains in net interest income, which offset its investment banking reductions. “The U.S. economy continues to be resilient,” said CEO Jaime Dimon. “Consumer balance sheets remain healthy, and consumers are spending, albeit a little more slowly. Labour markets have softened somewhat, but job growth remains strong.”

Bank of America, Wells Fargo, Morgan Stanley and Citigroup also saw increased interest revenue drive earnings beats. All were up by 2% to 4% after announcing positive earnings numbers.

Perhaps the biggest news from this group is about perennial overachiever Goldman Sachs. As the only one to post an earnings loss, the investment banking titan had some explaining to do. Unsurprisingly, a lack of merger activity, as well as initial public offerings didn’t add much to its bottom line. Instead it was the write-downs on commercial real estate, as well as the loss taken on the sale on the bank’s GreenSky fintech unit, that really cut into quarterly profits.

Despite the negative earnings report, Goldman shares were down only about 2% in pre-market trading.

Given the divergence between the super-powered U.S. economy and Canada’s more moderate outlook, it might not be a great idea to project these results directly onto Canadian bank earnings expectations. That said, Canadian banks are more similar to the retail banking operations of Bank of America than they are to the high-flying investment banking Goldmans of the world. Higher interest revenues should be solid wind in the sails of Canada’s Big Six Banks later this year. For more information, see our article on Canadian bank stocks at MillionDollarJourney.ca.

Canadians looking to invest in U.S. banks can do so through TSX-listed ETFs, such as the Harvest US Bank Leaders Income ETF (HUBL), RBC U.S. Banks Yield Index ETF (RUBY) and BMO Equal Weight US Banks Index ETF (ZBK). They can also get single-stock exposure to JP Morgan, Bank of America and Goldman Sachs in Canadian dollars through Canadian Depository Receipts (CDRs) listed on the Neo Exchange.