EC Earnings Optimism Following Bank Results

The positive results from JPMorgan (JPM) and Wells Fargo (WFC) have legitimately raised hopes that the March-quarter earnings results may not be as bad as many in the market had begun to expect – even if bank results don’t offer a lot of readthroughs to the broader economy.

JPMorgan’s net interest income – the difference between what it gets from its lending activities and what it has to pay to its depositors – came in at $14.45 billion, up +9% from the same period last year. Driving the gains was strength in the bank’s consumer-facing business, where loan volumes and margins increased meaningfully. This helped offset a flattish showing on the commercial side and weakness in the capital markets business.

The capital markets weakness wasn’t surprising, as management had earlier guided towards soft(ish) numbers, which was in-line with the secular trends of the last few years anyway. Trading revenues were down double digits, both on the fixed income and equity sides, partly offset by gains on the investment banking side. Though weak, JPMorgan’s capital markets and investment banking results were moderately better than expected, a function of low expectations reflecting the impact of a combination of factors like the government shutdown, subdued management guidance and tough comparisons to the year-earlier period.

This has readthrough for Citigroup (C) and Bank of America (BAC) that are on deck to report results on Monday and Tuesday, respectively. This likely raises the market’s hopes for Goldman Sachs (GS), which reports on Monday and is a pure-play investment bank which has been struggling with its fixed income, currencies and commodities (FICC) franchise over the last few years.

The strength in JPMorgan’s investment banking business is particularly notable for Goldman, whose advisory business has been in the top tier all along, even as the FICC unit lost its standing following the global financial crisis. Goldman’s new leadership has been trying to pivot the firm’s trading business away from the legacy trajectory and more toward lower-risk and relatively more stable trading flows. This strategy shift will take a while to fully take shape, but the market will be looking for signs that it is moving in that direction.

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Note: Sheraz Mian regularly provides earnings analysis on and appears frequently in the print and electronic media. In addition to this Earnings Preview article, he publishes the  more

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