Citigroup Inc – Page 8

Wall Street is cutting more jobs as Morgan Stanley plans 3,000 layoffs

[ad_1]

The logo of Morgan Stanley is seen in New York

Shannon Stapleton | Reuters

As Wall Street’s slump in IPOs and mergers deepens this year, top advisory firms including Morgan Stanley, Bank of America and Citigroup have turned to job cuts in recent weeks.

Morgan Stanley plans to eliminate roughly 3,000 positions by the end of June, according to a person with knowledge of the plans.

related investing news

That equates to roughly 5% of the New York-based bank’s workforce when excluding the financial advisors and support staff who will be spared in the cuts, the person said. The layoffs are expected to impact banking and trading staff the most, according to Bloomberg, which reported the moves earlier.

A historic boom in deals ignited by the pandemic was followed by a bust that began last year after the Federal Reserve started raising rates to hit the brakes on an overheating economy. The IPOs, debt issuance and mergers that feed Wall Street have all remain muted this year. For instance, IPO volumes are 74% lower than last year, according to Dealogic data.

For Morgan Stanley, the cuts show that Wall Street is wrangling with expenses as the slump drags on for longer than expected. The bank already cut about 2% of its workforce in December, CNBC reported.

Rising costs, falling revenue

Last month, analysts criticized Morgan Stanley for posting higher first-quarter costs while revenue declined. Expenses in the firm’s investment bank and wealth management division hurt profit margins in particular.

The bank’s moves aren’t isolated. The industry’s job cuts began in September, when Goldman Sachs reinstated a practice of culling those it perceives to be low performers. Nearly all the major Wall Street firms followed, and Goldman itself had to resort to another, deeper round of layoffs in January.

In recent weeks, big bank peers including Citigroup and Bank of America have cut a few hundred jobs each, relatively surgical cuts that should position the banks well when a rebound in deals finally arrives.

Last week, top boutique advisor Lazard said it planned to cut 10% of its workforce this year. The step was necessitated by restrained capital markets activity and wage inflation that pumped up salaries across banking.

“Candidly, things are not feeling as good as they were in December or January,” Chief Executive Ken Jacobs told Bloomberg.

Wall Street layoffs will be selective but broad-based, according to sources, says Hugh Son

[ad_2]

Source link

May 2, 2023

Big bank earnings season is over. Here’s how our stocks stack up against peers

[ad_1]

Big bank earnings are behind us. After hearing from the nation’s biggest institutions over the past couple weeks, we can breath a sigh of relief: They were better than feared. Many investors were understandably worried about the banking sector heading into this first-quarter earnings season following the collapse of Silicon Valley Bank (SVB) and two other U.S. lenders in March. But the biggest worry — that a flight of deposits from regional institutions to “too big to fail” banks would destroy investor sentiment — never happened. As a result, we’ve been able to focus solely on company fundamentals and what they may foretell about the economy and markets. Banks provide a inside look at the state of the consumer, specifically savings and credit levels, which in turn show how well positioned the consumer is to ride out an economic slowdown. Here are our winners for the two main segments of the sector, and how they compare to our two bank holdings in the Charitable Trust. We tried to take a holistic approach, using factors such as reported results versus expectations, historical performance, and absolute metrics within the peer groups. Investment banks Goldman Sachs (GS) and Club holding Morgan Stanley (MS) are the two pure-play investment banks we care about. They mostly provide services to large corporations and institutional investors (Citigroup and JPMorgan also have divisions that do this, but we put them in money center group since they also accept deposits and make loans to regular consumers and small businesses.) Of the two, Morgan Stanley posted the better first-quarter results, beating on both the top and bottom lines; Goldman missed on sales but beat the Street’s estimate for profits. Both investment banks, however, oversaw declines for both headline numbers. This just isn’t a good economic environment for investment banks, given the lack of initial public offerings and M & A activity; these banks collect huge fees shepherding deals for their clients. Goldman beat Morgan Stanley on one key metric: return on tangible common equity (ROTCE), which measures the bank’s ability to generate a return on its book (assets on balance sheet). Morgan Stanley had a better absolute number, but Goldman beat expectations. During earnings season, it’s all about beating expectations; as longer-term investors we value Morgan Stanley’s stronger performance (expectations aside) as it serves to support a more premium valuation. The exact opposite can be said for the efficiency ratio: Goldman put up a better number but missed expectations, while Morgan Stanley’s result edged out the consensus expectation (see chart 1). Goldman had a much larger annual jump in its efficiency ratio, which we never like to see; lower is better on this front. Also working to Morgan Stanley’s advantage is the better-than-expected result we got on the non-interest revenue line. Morgan Stanley also had $110 billion of net new assets come into the firm during the quarter, nearly double the $57 billion at Goldman This indicates Morgan Stanley management’s ongoing effort to diversify the business is working — and makes it the investment bank best-positioned to ride out an economic downturn. Money center banks JPMorgan Chase was the clear-cut winner of the four main commercial banks this earnings season. It put up the best numbers versus expectations and and in many cases — sales, earnings, annual growth, the efficiency ratio, ROTCE — on an absolute basis (see chart 2). Our runner-up is Wells Fargo (WFC). The Club name reported the second-best annual sales and earnings growth of the group, the greatest efficiency ratio improvement, and by far the strongest net interest margin on an absolute basis. Of special note: Wells Fargo was the only big bank to see non-interest expense actually decline versus the year-ago period. Third place was tight, but the combination of better earnings growth and a significantly better ROTCE made Bank of America (BAC) the better performer. Citigroup (C) had a better net interest margin, but its earnings didn’t look quite as good after excluding divestiture-related impacts and the bank’s ROTCE was below its peers. Sizing up bank valuations Morgan Stanley is currently trading at a premium at 13.7 times forward earnings, compared to 10.3 for GS. That valuation is warranted given the recent results, its premium ROTCE profile and management’s execution of things it can control. Recent acquisitions E-Trade and Eaton Vance are also gathering reporting solid growth in gathering assets. Goldman, on the other hand, still seems to be searching for direction in regard to its consumer business Marcus — especially now that partner Apple (AAPL) has launched its own, higher-yielding savings account with the bank. This could cause some cannibalization though management doesn’t believe it to be a major risk . Morgan Stanley also boasts a better dividend yield, paying us to wait until investment banking activity returns. For the commercial banks, JPMorgan unsurprisingly has the highest valuation at 9.9 times forward earnings and 2.2 times tangible book value, a valuation metric for banks. It also has the lowest dividend yield. JPM is the premium name of the sector. Wells Fargo and Bank of America have similar valuations — both at 8.8 times forward earnings. BAC has a higher dividend yield, but Wells Fargo has a lower P/TBV valuation. We’re sticking with Wells Fargo because it has more room for improvement on expenses. The eventual removal of the just over $1.9 trillion asset cap imposed by the Federal Reserve in 2018 in response to several scandals at the bank could be a very positive catalyst. This would free the bank to issue additional loans and ultimately return more cash to shareholders. Both things will improve the bank’s ROTCE and efficiency ratio. Citigroup’s big beat on earnings has to be taken with a grain of salt because sentiment on the name is about as bad as it gets. The current valuation of 8.1 times forward earnings and its 0.6 times tangible book value support that view. On the bright side, you are getting a pretty hefty dividend yield. We would still rather pay up a little for Wells Fargo thanks to the self-help nature of our investment thesis (cost reductions, actions to please regulators), especially at a time of so much macroeconomic uncertainty. Citigroup is currently trading below tangible book value — usually an absolute steal. However, if you bought Citigroup in the past decade based on the P/TBV being below 1, you’ve learned the hard way about how frustrating it can be to own a “value trap.” With a few pops here and there, this bank has largely traded below tangible book value going back to the Great Financial Crisis of 2007-2009. The reason for this valuation is largely tied to the bank’s poor ability to generate a return on tangible common equity. The book of business is worth more if management can generate a greater return on it. JPM has by far the best ROTCE and highest P/TBV multiple, then comes Bank of America, followed by Wells Fargo and finally Citigroup. The same is true for the investment banks. Morgan Stanley sports a high ROTCE, supporting its premium valuation multiple. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Morgan Stanley Chairman and Chief Executive James Gorman speaks during the Institute of International Finance Annual Meeting in Washington, October 10, 2014.

Joshua Roberts | Reuters

Big bank earnings are behind us. After hearing from the nation’s biggest institutions over the past couple weeks, we can breath a sigh of relief: They were better than feared.

[ad_2]

Source link

April 23, 2023

Bank of America or Citi? Analysts say one stock is set to soar 50%

[ad_1]

[ad_2]

Source link

April 20, 2023

Veteran investor David Roche says a credit crunch is coming for ‘small-town America’

[ad_1]

A home in Lynch, Kentucky.

Scott Olson | Getty Images

The banking turmoil of March, which saw the collapse of several regional U.S. lenders, will lead to a credit crunch for “small-town America,” according to veteran strategist David Roche.

The collapse of Silicon Valley Bank and two other small U.S. lenders last month triggered contagion fears that led to record outflows of deposits from smaller banks.

related investing news

Earnings reports last week indicated that billions of dollars of deposit outflows from small and mid-sized lenders, executed amid the panic, were redirected to Wall Street giants — with JPMorgan Chase, Wells Fargo and Citigroup reporting massive inflows.

“I think we’ve learned that the big banks are seen as a safe haven, and the deposits which flow out of the small and regional banks flow into them (big banks), but we’ve got to remember in a lot of key sectors, the smaller banks account for over 50% of lending,” Roche, president of Independent Strategy, told CNBC’s “Squawk Box Europe” on Thursday.

“So I think, on balance, the net result is going to be a further tightening of credit policy, of readiness to lend, and a contraction of credit to the economy, particularly to the real economy — things like services, hospitality, construction and indeed small and medium-sized enterprises — and we’ve got to remember that those sectors, the kind of small America, small-town America, account for 35 or 40% of output.”

Veteran investor David Roche sees further contraction of credit to 'small America'

The ripple effects of the collapse of Silicon Valley Bank were vast, setting in motion a chain of events that eventually led to the collapse of 167-year-old Swiss institution Credit Suisse, and its rescue by domestic rival UBS.

Central banks in Europe, the U.S. and the U.K. sprang into action to reassure that they would provide liquidity backstops, to prevent a domino effect and calm the markets.

Roche, who correctly predicted the development of the Asian crisis in 1997 and the 2008 global financial crisis, argued that, alongside their efforts to rein in sky-high inflation, central banks are “trying to do two things at once.”

“They’re trying to keep liquidity high, so that the problems of deposit withdrawals and other problems relating to mark-to-market of assets in banks do not cause more crises, more threats of systemic risk,” he said.

“At the same time, they’re trying to tighten monetary policy, so, in a sense, you’ve got a schizophrenic personality of every central bank, which is doing with the right hand one thing and doing with the left hand the other thing.”

Expect more issues in the banking sector, but not a full-blown crisis, strategist says

He predicted that this eventually results in credit tightening, with fear transmitting to major commercial banks that receive fleeing assets and “don’t want to be caught up in a systemic crisis” and will be more cautious on lending.

Roche does not anticipate a full-scale recession for the U.S. economy, although he is convinced that credit conditions are going to tighten. He recommended investors should take a conservative approach against this backdrop, parking cash in money market funds and taking a “neutral to underweight” position on stocks, which he said were at the “top of the crest” of their latest wave.

“We will probably go down from here, because we will not get rapid cuts in interest rates from central banks,” he said.

He added that 10-year U.S. Treasurys were “reasonably safe” at the moment, as are long position on the Japanese yen and short on the U.S. dollar.

Investors assume long positions by buying assets whose value they expect to increase over time. Short positions are held when investors sell securities they do not own, with the expectation of purchasing them at a later date at a lower price.

Despite commodities not yielding much this year, Roche is sticking to long calls on grains, including soya, corn and wheat.

“Beyond the geopolitical risks which are still there, the supply and demand balances for those products looking out five years is very good,” he said.

[ad_2]

Source link

April 20, 2023

Morgan Stanley tops analysts’ expectations on better-than-expected trading results

[ad_1]

Morgan Stanley CEO James Gorman participates in a conversation-style interview with Economic Club of Washington in Washington September 18, 2013.

Yuri Gripas | Reuters

Morgan Stanley on Wednesday topped estimates for first quarter profit and revenue on better-than-expected trading results.

Here’s how the company did:

Earnings of $1.70 per share, vs. $1.62 Refinitiv estimate
Revenue of $14.52 billion, vs. $13.92 billion estimate.

The New York-based bank said earnings fell 19% to $2.98 billion, or $1.70 a share, from a year earlier on declines in investment banking and trading. Companywide revenue slipped 2% to $14.52 billion.

As revenues dipped, expenses at the bank climbed 4% to $10.52 billion, mostly fueled by higher-than-expected compensation costs. Expenses came in $430 million higher than the StreetAccount estimate.

Higher costs helped hurt profit margins at the bank’s wealth division and investment bank, analyst Mike Mayo of Wells Fargo said in a research note. He also said that when excluding the benefit of a low tax rate, the bank would’ve earned $1.64 per share.

Shares of the bank dropped 3.8% in premarket trading.

Under CEO James Gorman, Morgan Stanley has become a wealth management giant thanks to a string of acquisitions. The bank gets most of its revenue from wealth and investment management, steadier businesses that help to offset volatile trading and banking results.

“The investments we have made in our wealth management business continue to bear fruit as we added a robust $110 billion in net new assets this quarter,” Gorman said in the earnings release. “Equity and fixed Income revenues were strong, although investment banking activity continued to be constrained.”

Wealth management revenue climbed 11% from the year-earlier period to $6.56 billion, matching the StreetAccount estimate. The increase was fueled by a rise in net interest income amid higher rates and loan growth, which offset lower asset management revenues as markets declined.

First-quarter trading revenue dipped from a year ago as Wall Street comes down from a pandemic-era boom, but Morgan Stanley’s traders managed to top expectations by roughly $250 million.

The bank’s fixed income traders produced $2.58 billion in revenue, exceeding the $2.33 billion StreetAccount estimate. Equities trading revenue of $2.73 billion edged out the $2.65 billion estimate.

Investment banking revenue dropped 24% to $1.25 billion on fewer completed M&A deals and lower stock and debt issuance, edging out the $1.2 billion estimate.

Finally, the bank’s smallest business, investment management, saw revenues drop 3% to $1.29 billion, just below the $1.34 billion estimate, as management fees decreased amid declining markets.

At the start of a conference call with analysts, Gorman addressed the turmoil sparked by the March collapse of two American regional banks.

“In my view, we are not in a banking crisis, but we have had and may still have a crisis among some banks,” Gorman said. “I consider the condition not remotely comparable to 2008.”

He added that there was “no doubt” that Morgan Stanley would acquire more companies in wealth management, though nothing was imminent.

Morgan Stanley shares have climbed 5.7% this year before Wednesday, outperforming the 16% decline of the KBW Bank Index.

JPMorgan Chase, Citigroup, Wells Fargo and Bank of America each topped expectations as the firms reaped more interest income amid rising rates. Goldman Sachs missed on costs tied to unloading consumer loans amid its pivot away from retail banking.

This story is developing. Please check back for updates.

[ad_2]

Source link

April 19, 2023

Treasury yields little changed as focus remains on economic outlook, earnings

[ad_1]

John Zich | Bloomberg | Getty Images

U.S. Treasury yields were little changed on Tuesday, as investors continued to assess the outlook for the U.S. economy and digested the latest round of corporate earnings.

As of around 2:20 a.m. ET, the yield on the benchmark 10-year Treasury note was fractionally higher at 3.5946% while the yield on the 30-year Treasury bond also nudged marginally upwards to 3.8080%. Yields move inversely to prices.

Corporate earnings season dominates this week’s agenda, with giants Johnson & Johnson, Bank of America and Goldman Sachs all set to report before the opening bell on Wall Street on Tuesday.

On the data front, traders will have an eye on the March housing starts and building permits figures due at 8:30 a.m. ET. Housing starts for the month are expected to have fallen by 3.4% to 1.40 million units, according to Dow Jones consensus estimates, while building permits are projected to drop by 4.9% to 1.45 million units.

Markets are closely following economic data for a read on where the Federal Reserve might take interest rates at its next meeting in early May. More than 84% of traders are calling a 25 basis point hike at the next policy meeting, according to CME Group’s FedWatch tool.

An auction will be held Tuesday for $34 billion of 52-week Treasury bills.

[ad_2]

Source link

April 17, 2023

Goldman Sachs is set to report first-quarter earnings — here’s what the Street expects

[ad_1]

David Solomon, chief executive officer of Goldman Sachs Group Inc., during a Bloomberg Television at the Goldman Sachs Financial Services Conference in New York, US, on Tuesday, Dec. 6, 2022.

Michael Nagle | Bloomberg | Getty Images

Goldman Sachs is scheduled to report first-quarter earnings before the opening bell Tuesday.

Here’s what Wall Street expects:

Earnings: $8.10 per share, 25% lower than a year earlier, according to Refinitiv.
Revenue: $12.79 billion, 1.1% lower than a year earlier.
Trading Revenue: Fixed Income $4.16 billion, Equities $2.9 billion, per StreetAccount.
Investing Banking Revenue: $1.44 billion

How did Goldman’s traders perform last quarter?

The answer to that question will determine whether Goldman exceeds or misses expectations for the first three months of this year.

Unlike its more diversified rivals, Goldman gets the majority of its revenue from Wall Street activities including trading and investment banking. With the advisory business remaining subdued because the IPO window remains mostly shut, it’s up to traders to pick up the slack.

Heading into the quarter, analysts wondered whether turmoil during March — in which two American banks failed and a global investment bank was forced to merge with a longtime rival — would provide a good or bad backdrop to trading.

That question was seemingly answered by JPMorgan Chase and Citigroup, both of which beat estimates in part because of better-than-expected fixed income trading. Goldman has one of the biggest bond shops on Wall Street, so expectations are high.

So far this earnings season, big banks have mostly outperformed their smaller peers, helped by an influx of deposits after Silicon Valley Bank’s meltdown. But since retail banking plays a small — and probably shrinking — role at Goldman, much more focus will be on how trading and investment banking fared, and what expectations are for later this year.

Separately, analysts will want to hear what has come of CEO David Solomon’s proclamation in February that Goldman was weighing “strategic alternatives” for its consumer platforms business. That has been interpreted as potentially selling off the GreenSky business it acquired recently or offloading credit-card partnerships with Apple and others.

And they’ll likely ask for details about Goldman’s part in helping Apple offer new savings accounts; the product launched with a higher interest rate than the bank’s own Marcus product has.

Goldman shares have dipped 1.1% this year before Tuesday, a better showing than the nearly 17% decline of the KBW Bank Index.

Last week, JPMorgan Chase, Citigroup and Wells Fargo all topped profit expectations amid rising rates. Morgan Stanley is scheduled to release results Wednesday.

This story is developing. Please check back for updates.

[ad_2]

Source link

April 17, 2023

CNBC Daily Open: Don’t be fooled by big banks’ earnings

[ad_1]

Workers erect a construction barrier in front of JPMorgan Chase & Co. headquarters in New York, U.S., on Friday, Jan. 11, 2019.

Michael Nagle | Bloomberg | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

On Friday three big U.S. banks reported better-than-expected first-quarter earnings. But investors realized this wasn’t an unambiguously good sign for markets.

What you need to know today

JPMorgan Chase, Wells Fargo and Citi reported earnings Friday. All three big U.S. banks handily beat profit and revenue expectations. JPMorgan’s numbers were the most impressive, with profit surging 52% in the first quarter.

U.S. markets fell Friday as weak retail sales overshadowed banks’ stellar earnings. Asia-Pacific stocks were mixed Monday. China’s Shanghai Composite rose 1.21% on the back of two pieces of good news: The country’s economy is expected to expand 4% in the first quarter, and its home prices grew the fastest, month over month, in almost two years.

PRO Markets this week will mostly be influenced by earnings reports, writes CNBC Pro’s Scott Schnipper. One important tip: Investors shouldn’t assume all better-than-expected numbers are good — because earnings forecasts have been negative for so long.

The bottom line

Investors weren’t misled by big banks’ bonanza of incredible earnings.

Yes, profit and revenue for all three banks that reported Friday rose compared with a year earlier. JPMorgan reported a record revenue of $39.34 billion, a 25% jump that beat analysts’ estimate by more than $3 billion. Wells Fargo’s revenue popped 17%, and Citi’s rose 12%.

Investors rewarded the banks for their sterling balance sheets: JPMorgan soared 7.55% and Citi added 4.78% — though Wells Fargo dipped 0.05%, not because its numbers were bad but, I suspect, because it didn’t beat Wall Street expectations as much as the other two banks.

Why were the figures so good? They had to thank rising interest rates, which allow banks to charge more for loans they make, while keeping the interest on saving accounts low. Banks pocket the difference, which is known as net interest income. It seems banks will continue benefiting from today’s high interest-rate environment: JPMorgan predicted net interest income will be $7 billion more than the bank had previously forecast.

But high interest rates are a double-edged sword. Even though higher rates fueled big banks’ earnings, they also expose weaknesses in balance sheets, as Dimon himself warned. This means that regional banks, lacking the financial heft of bigger ones to cushion possible losses — that’s essentially how SVB failed — might not have such good news to share when they report earnings next week.

In other words, what’s good for big banks’ income is not necessarily good for the economy. Indeed, data released Friday showed the economy is slowing down. Retail sales in March declined 1%, two times more than economists had expected, according to an advanced reading. Citigroup CEO Jane Fraser said on an investor call that the bank saw a “notable softening” in consumer spending this year.

Despite the excitement over the big banks’ earnings, then, investors kept a cool head, causing the three major indexes to fall. The S&P 500 lost 0.21%, the Dow Jones Industrial Index slid 0.42% and the Nasdaq Composite fell 0.35%.

Further earnings this week will give investors a clearer sense of markets.

Here are some key reports to look out for: Charles Schwab on Monday; Bank of America, Goldman Sachs and Netflix on Tuesday; Morgan Stanley, IBM and Tesla on Wednesday; American Express on Thursday; Procter & Gamble on Friday. By the end of this week, investors should know if the disconnect between a profitable corporate America and a flagging economy is limited to big banks — or if it’s another side effect of the strange times we live in.

Subscribe here to get this report sent directly to your inbox each morning before markets open.

[ad_2]

Source link

April 16, 2023

Here’s what I want to see before buying in a stock market that stumbled on solid bank earnings

[ad_1]

We just had three fantastic quarters from three disparate banks, and I didn’t read a good word about them. Think about this. JPMorgan (JPM) reported such an outstanding quarter that I had to read it twice to believe how it could possibly have been that good to rally this very big-cap stock by almost $10-per-share. Almost $10. This is not some tech stock beating faux estimates and being loved by idolatrous research analysts. This is JPMorgan, like the House of Morgan. I have not liked the stock of Citigroup (C) after it began to diverge immensely from its tangible book value (TVB). I do not understand how it could be double the price of the stock when the TVB means that if you closed the bank that’s what you would get. Hmmm, you buy Citi at $50 per share and you get almost a double if CEO Jane Fraser decides to close it? I don’t think so. Put aside that nagging oddity for a second and you have to be impressed with the quarter. I would go as far as to say that Citi seems to become just plain cheap, especially if it sells Banamex, one of Mexico’s biggest banks, for a good price. Looks like the celebration of the far-flung is, at last, joyously over. I know the stock of Wells Fargo (WFC) didn’t do much after it reported. That was just a wrong reaction. The bank, a core position of my Charitable Trust, really did beat the top and bottom line quarterly numbers handily, bought back $4 billion in stock — and yet, it added so much more capital that it has more than it did before the buyback started. It’s oozing with cash. WFC YTD mountain Wells Fargo YTD peformance More important, Wells Fargo is almost done peeling back the regulatory onion. It has had to spend fortunes in fines and technology and risk management hires that I can’t believe it had such a good efficiency ratio, a number I regard as important as all of those net interest income and margin numbers that everyone is so possessed about. Those were, of course, great, too, but that’s simply a question about how stupid the deposit base is. The dumber the base the less likely it is to leave for greener pastures. Wells Fargo’s base seems pretty dumb, but we might see dumber this week. Now, I offer the story of these banks as a preamble to what I see happening in the stock market right now. Bank stocks are notorious underperformers in the aggregate and have been labeled uninvestable by many including, at times, yours truly. That’s because they have become trading vehicles. They screw up too often. Which is why Friday was so remarkable. Bank trading is like playing Russian Roulette with three bullets. Usually, half are going to blow your head off. Instead, we went three for three. Have bank CEOs suddenly become the most brilliant CEOs in the world? No. But this is one special moment for the U.S. economy. First, you have everyone running scared, which is, by nature, good news because banks make far fewer mistakes when they run scared. And, they are making far fewer mistakes. Second, all three showed that the American consumer is still pretty flush and is not living beyond their means. There’s a little increase in bad debt, but nothing like we used to see before Covid. Maybe the aftermath of the pandemic has introduced still one more new wrinkle on the financial landscape: people want to spend but they don’t want to go broke. Third, this commercial real estate boogie man, while real, may not be real for those who know how to lend. We spill barrels of ink, or billions of characters, on how commercial real estate is the graveyard we whistle past or the most hated cliche of my era, the canary in the coal mine, and we never talk about who owns the bad loans on “Class C” and “D” buildings. I know who doesn’t: these banks. Now, I know the cynic says that the grade is in the eye of the beholder. That’s just not true, though, because what these companies do, quite cleverly, is describe where these buildings are because what seems to matter most is density. If there is a shortage of real estate then a not-so-hot piece of real estate earns a “B”, not a “C” or “D”. Yes, that’s me talking, but if you want to go over every building that has a loan that’s current and decide that it isn’t, well, don’t own any banks, period. Finally, there’s a really interesting backfire going on here with what the Federal Reverse is accomplishing, and it’s not all bad. The pandemic produced savers with miserable savings rates. Now these same savers are getting very big, safe, returns on their capital. Their frugality — except, I think we will find when they are on vacation — is matched by their better returns on their holdings. Sure, Wall Street snobs will laugh at those who have $100,000 and are now picking up a few extra percent. But these are the same jackasses who live six months and a day next to The Breakers resort in Palm Beach, Fla., where a dozen stone crabs cost $779 and they don’t mind. So, what they heck to do they know? This brings me back to the most important point of what happened Friday: Our worst fears about spiking bad loans of the auto, credit and home variety didn’t come true and therefore won’t come true this coming week. Amazingly, like the “stays-in-Vegas” cliche — what happened at a bank that loaned against pre-IPO companies while investing at a moronic part of the bond market yield curve, seems to have stayed at Silicon Valley Bank. Or, at least, it has stayed long enough that if there is another bank failure, there’s been plenty of time to come up with a plan. I don’t want to conflate a day of good bank earnings with a month of good stock prices. We are still overbought and are now getting less overbought, which is actually a time when stocks tend to go down. We also know that there are so many people who like to talk about the Fed that there will be a steady drumbeat of negativity. The Fed never inspires positivity — and if you ever say that it does, you are branded an idiot rather quickly. But if are going to name-call, I can tell you that the only thing easier to opine on without doing any homework besides politics is the Federal Reserve. Can there be any other explanation why recently you could go from a prediction of a 50-basis-point interest rate hike, to a 25-basis-point hike, to no hike, to a possible emergency cut, then back to no hike and then all the way back to a 25-basis-point hike, and still be taken seriously? Only if everyone is telling the same idiotic tale. Still, because we live and die by Fed chatter, you can’t rule out some rollercoaster action, not in the plain vanillas that define the week ahead— from the likes of Club holdings Johnson & Johnson (JNJ) on Tuesday, Morgan Stanley (MS) on Wednesday and Procter & Gamble (PG) on Friday — but in the over $500 billion club of techs that always manage to be at the forefront of stock despair. Not economic despair. Just stock despair. Bottom line Maybe that’s why nothing is grabbing us right now, nothing new, nothing exciting. It’s not like we demand lower prices, but believing that things aren’t as terrible as we thought and deciding to put money to work should not be confused. I think it’s fair to say that earnings could ratify prices not necessarily boost them, so why not wait for better prices for more committing of capital? We have made our sales. We have our cash. I am not asking for Dollar Tree pricing (the store, not the stock). But would a bit of a discount from Hermes and Vuitton be too much to ask? (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

People walk past a Wells Fargo branch on January 10, 2023 in New York City.

Leonardo Munoz | View Press | Corbis News | Getty Images

We just had three fantastic quarters from three disparate banks, and I didn’t read a good word about them.

[ad_2]

Source link

April 16, 2023

CNBC Daily Open: Don’t be misled by the big banks

[ad_1]

JPMorgan Chase & Co. headquarters in New York, US, on Wednesday, Jan. 18, 2023.

Gabby Jones | Bloomberg | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

On Friday three big U.S. banks reported better-than-expected first-quarter earnings. But investors realized this wasn’t an unambiguously good sign for markets.

What you need to know today

JPMorgan Chase, Wells Fargo and Citi reported earnings Friday. All three big U.S. banks handily beat profit and revenue expectations. JPMorgan’s numbers were the most impressive, with profit surging 52% in the first quarter.

PRO Markets this week will mostly be influenced by earnings reports, writes CNBC Pro’s Scott Schnipper. One important tip: Investors shouldn’t assume all better-than-expected numbers are good — because earnings forecasts have been negative for so long.