Same morning, same stage, two very different report cards. Bank earnings season opened Tuesday with a split decision: both of the biggest names made more money than a year ago, but only one cleared the bar Wall Street set for it. The bank earnings kickoff had Goldman Sachs sprinting and JPMorgan Chase stumbling, at least by the scoreboard analysts keep. For the full season setup, see our preview of Q3 as Wall Street holds its breath at record highs.
Goldman Sachs Made the Big Beat in Bank Earnings Season
Goldman reported third-quarter net earnings of $5.29 billion, or $17.01 per share. A year ago it earned $4.10 billion, or $12.25 per share. That works out to profit up 29% and net revenue up 23%.
Analysts expected far less. Estimates ranged from about $12.90 to $13.50 per share, depending on who was counting. Revenue of $18.68 billion topped a forecast of $16.87 billion, according to AP.
That is not a photo finish. That is a lap. Goldman shares were up about 3.8% before the opening bell.
The star was stock trading. Equities revenue jumped 72% to $6.44 billion, per wire reporting. Fixed income, currencies and commodities, on the other hand, came in at $3.47 billion, down 1%.
Volatility was Goldman’s friend. The quarter brought Middle East conflict, the Fed’s September rate hike, rising fuel costs and a chip-stock selloff. Messy markets mean busy trading desks (a sentence Goldman’s accountants presumably enjoy), and the chip-stock selloff only added to the churn.
It wasn’t all clean, though. Goldman set aside $368 million for credit losses, largely tied to wholesale loan impairments. Apple Card loan markdowns helped drag Platform Solutions revenue down 72%, Yahoo Finance reported. Charitable contributions also trimmed earnings by about $1 per share.
CEO David Solomon described “a complicated operating environment.” Even so, Goldman made $5.3 billion in it.
JPMorgan’s Quarterly Bank Profits Grew but Fell Short
JPMorgan’s morning looked different. Net income hit $15.3 billion, up 6% from $14.4 billion a year ago. Diluted earnings were $5.57 per share, according to a summary of its SEC filing.
So where’s the problem? Expectations. Analysts wanted $5.93 per share on revenue of $51.23 billion. JPMorgan reported revenue of $50.2 billion, or $50.9 billion on a managed basis, which is the bank’s own adjusted measure. Either way, it was a miss, as Proactive Investors noted.
There was a one-time culprit. A $658 million net investment securities loss weighed on the quarter. Without it, JPMorgan earned $15.8 billion, or $5.75 per share.
That is still short of the $5.93 forecast, so the loss doesn’t fully explain the miss.
The engine itself ran hot. Net interest income, the money banks earn lending out deposits, rose 13% to $27.1 billion. Average loans reached $1.6 trillion, up 10%. But expenses climbed 12% to $27.3 billion, faster than revenue grew. Credit costs were $2.7 billion, including a $539 million reserve build.
One more detail will get attention. Fixed income trading revenue at JPMorgan fell for the first time in more than two years, according to a secondary report. Goldman’s equities desk was cashing in on the chaos while JPMorgan’s bond desk was not.
What Wall Street Earnings Say About the Economy
A 6% profit gain used to be a good day. When the whole Street expects better, it reads as a miss. That is the price of being the biggest bank in America.
Here’s the thing: the bigger story is what these big bank results say about the economy. Investors have been watching whether surging Treasury yields are choking off dealmaking, lending and credit quality, as CNBC’s live coverage noted. Trading desks are thriving on volatility, but banks that depend on steady lending have to keep an eye on the credit side of the ledger.
The kickoff is only half the picture. Wells Fargo and Citigroup also reported Tuesday, and CNBC called Wells Fargo’s results mixed. Bank of America and Morgan Stanley report Wednesday, and regional banks follow Friday. Meanwhile, other sectors are posting their own numbers, as UnitedHealth’s third raise of its profit forecast shows.
Right now the winner is the bank that profits when markets get jumpy. Will Bank of America and Morgan Stanley clear the bar on Wednesday, or trip over it too?
