A favorable start to the bank sector results should help stocks overcome global growth fears, at least for today. Banks’ domestic orientation limits the significance of their results to the ongoing growth worries, but their positive results are nevertheless welcome.
J.P. Morgan (JPM) and Citigroup (C) posted positive-looking numbers on strength in trading and advisory businesses, partly offset by flat core banking profitability. Wells Fargo (WFC) doesn’t have an investment banking franchise, and it showed in their in-line results that were held down by net interest margin pressures. Citi also appears to be rethinking its global banking presence by announcing the divestiture of its banking operations in a number of countries.
Increased market volatility towards the end of Q3 helped improve trading revenues, particularly on the fixed income, currencies and commodities side. FICC revenues were up both at JP Morgan and Citi, though legal expenses were up at both banks as well. Also benefiting results are increased advisory business revenues reflecting a greater number of M&A and IPOs. Today’s positive investment banking results bode well for results from Goldman Sachs (GS) later in the week, which has a much stronger advisory franchise.
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On the commercial banking side, we are seeing loan growth starting to pick up on the back of improving commercial and industrial loans and some improvement in consumer categories even as mortgage portfolios continue to decline and the net interest margin backdrop remains difficult. Citi also announced plans to shrink its global commercial banking presence, with the bank divesting its retail banking operations in 17 countries. This will reduce the bank’s global retail presence to 24 countries from the current 35 markets.
This is a good start to the Q3 earnings season from the all-important Finance sector, which is the highest earnings contributor to the S&P 500 index. Intel (INTC), which reports after the close today, will give us a good sense of what to expect from the Technology sector, the second largest earnings contributor to the index. The semiconductor sector has been under pressure since last week’s Microchip (MCHP) pre-announcement — it will be interesting to see if Intel’s report later today will confirm that.
