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What's going on?
A trio of major US banks reported financial results on Thursday and the news highlighted a stark divergence between traditional banking and Wall Street-style investment banking.
What does this mean?
JPMorgan, Citigroup and Wells Fargo all reported their first quarter earnings to investors on Thursday. The retail banking businesses (e.g. personal banking, mortgages, etc.) of all three suffered either a decline in income or, in Citis case, only a tepid increase. Meanwhile, JPMorgans and Citis investment banking income (e.g. from advising big corporations, trading stocks, etc.) jumped over 15%. But this wasnt enough to excite investors, as JPMorgan and Citigroup saw their stocks fall on Thursday, while Wells Fargos, which doesnt have a large investment banking presence, fell even more.
Why should I care?
For the markets: Bank stocks appear to have jumped a little ahead of themselves.
Bank stocks were among the top performers in the immediate aftermath of President Trumps election. The theory was that fewer limitations on their activities, an economic pickup and higher interest rates would all help banks profits. But bank stocks have been weak for the past six weeks or so: with US economic growth looking tepid in the first quarter and many of Trumps policies not yet getting off the ground, investors have become less optimistic about banks future profits.
The bigger picture: Banks are giving fewer loans than one would expect, which is a bit worrying.
Many survey indicators in recent months have suggested that people and companies were feeling far more confident in their economic prospects, and thus would spend more money on things ranging from new furniture to expanding factories and hiring more workers. However, banks in the US are reporting declining growth in the loans they make which is the opposite of what one would expect from an economic pickup. It suggests there is not the demand for money that many think there is (i.e. the money is available, but people/businesses dont feel confident enough to spend it), which, if true, is a bad sign for economic growth.
Originally posted as part of the Finimize daily email.
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