Banks are earning the most in ten years. Why aren't their stocks rising after results?
The four largest US banks today announced their strongest quarter in a decade. The market shrugged its shoulders, the world's largest bank missed estimates, and its CEO stopped buying its own stock. Something's off here. And it concerns anyone with the financial sector in their portfolio.
Key points
JPMorgan earned $15.3 billion. And yet it disappointed. The cause has three digits.
Dimon cut buybacks of its own shares from $7 billion to $1 billion. He explained why in one sentence.
Higher rates were supposed to help banks. Today, they brought one of them a loss of $658 million.
Banks claim the consumer is healthy. At the same time, they are quietly increasing reserves for losses. What are they afraid to say out loud?
Only one bank rose. The one holding the fewest deposits and mortgages. That's no coincidence.
Banks' best day in ten years ended in disappointment
If you had seen only the press release headlines this morning, you'd think US banks were experiencing a golden age. Citigroup $C reported its highest third-quarter revenue in ten years. Goldman Sachs $GS booked the second-highest quarterly revenue in its history and earnings per share of $17.01 against expectations of roughly $13. Wells Fargo $WFC raised profits by 13%. And JPMorgan Chase $JPM , the largest bank in the United States and, with a market capitalization of around $900 billion (roughly 19 trillion crowns), also the largest bank in the world, earned $15.3 billion over three months.
Then you look at stock prices. Wells Fargo lost over 2% during Tuesday's trading, Citi around 2%, JPMorgan barely clawed its way back to zero after a morning drop of 3% in the premarket. The only one that rose was Goldman, and even that only by low single digits.
And most importantly: JPMorgan, a bank that beats analyst estimates with such regularity that it has become a cliché, this time missed expectations. Earnings per share of $5.57 instead of the expected $5.90, revenue of $50.2 billion instead of $51.2 billion. A seemingly minor thing. But for a company that is the market's benchmark for the health of the entire sector, it's like the best student in the class getting a C. Everyone starts asking what's going on.
The answer is both simple and disturbing: banks got exactly what they had been waiting for for years. Higher interest rates. And it turns out that this is a gift with two sides.