Proprietary Data Insights
Financial Pros Top Bank Stock Searches in January
Where’s The Demand?
As we point out in our main story, consumer and commercial lending loans actually declined at several of the major banks.
That’s at odds with what we hear about companies increasing local capacity and home demand through the roof.
It may simply be the size of the hose.
Think of water as demand and the hose as the amount of stuff we can build based on supplies.
Right now, that house is narrow. People can want to build but we don’t have the materials to make that happen.
What does that mean for banks?
Assuming rates don’t become prohibitively high, which we don’t think they will, loan growth should pick up in the back half of this year. That is if supply improves.
What We Learned From Bank Earnings
Big banks reported earnings this morning. Despite solid results, an unfortunate surprise lurked underneath.
Banks couldn’t escape the long reach of inflation.
Citigroup (C) and JP Morgan (JPM) saw shares trade lower even as earnings and revenues beat estimates.
How can that be you ask?
Cost controls failed in Q4 as non-interest expenses, those tied to operations, rose.
However, Wells Fargo (WFC) managed to drop non-interest expenses by 10.8% to $13.198 billion.
Analysts questioned the difference between the banks. Management pointed to higher labor and wage costs to attract and retain top talent.
Wells stood as the outlier after having several rough years plagued by scandal.
As expected, loans continue to grow at JP Morgan by 6% and Wells Fargo by 2.5%, mainly in the second half. However, this was driven primarily by securities and corporate lending. In fact, Wells saw a decline in Consumer and Commercial banking loans YOY in Q4.
Interestingly, Citigroup saw no loan growth.
All banks said they expect higher interest rates to improve their bottom lines by widening the spread between the interest they pay on deposits and the interest generated on loans.
Trading Revenues Drop
One of the reasons JP Morgan saw shares fall was the decline in trading revenue.
Analysts expected a 13.5% slide in fixed-income trading when the actual number came in closer to 16%.
The Bottom Line: The selloff in banking stocks seems a bit absurd. All three of these companies are still incredibly cheap and expect to increase profits in the coming months.
Of the tickers, we like Citigroup the best in terms of value. However, if you’re looking to play the sector more broadly, consider the XLF financials ETF or the regional banking KRE ETF.
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