Major banks have begun reporting their quarterly results, with JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and Bank of America (BAC) among the leading institutions.
Ken Leon, Director of Equity Research at CFRA Research, joins Yahoo Finance Live to discuss the results.
Consumer trends are a key concern for banks, as Leon notes: “We're still seeing a pretty healthy consumer,” but he notes that things are starting to normalize, with savings rates falling and credit card defaults increasing. Leon sees consumers as stable – with the exception of credit card and possibly auto loans, and that “the overall loan book looks good.”
For more expert insights and the latest market activity, click here to watch this full episode of Yahoo Finance Live.
Editor's Note: This article was written by Eyek Ntekim
Video transcript
– As we read about how all of these banks talk about the consumer and the economy, what would you pay particular attention to in all of these earnings releases? What would investors pay the most attention to here as we get some of the forecasts but also almost the meteorological analysis of some of these CEOs on the economy?
KEN LEON: Well, banks are inherently quite nervous when it comes to receiving payments. And we still see a pretty healthy consumer. But we are also seeing a return to a normalized environment where savings rates have fallen. There are signs of an increase in delinquency on credit cards. However, we wouldn't see anything that was too far from the historical average.
Things are still looking good for small and medium-sized businesses too. The jobs and employment figures are good. And if we look at corporate markets, as multinational corporations they are likely to be more sensitive to geopolitical risks from the start of 2024. They might be a little more conservative on capital investments, but we've reached a tipping point in investment banking fees over the last year. We expect there will be pent-up demand for equity and debt acquisitions as well as mergers and acquisitions in 2024.
The story goes on
– Ken, something just occurred to me that you just mentioned in loan loss provisions. That's because it seemed like there was an overall increase in loan loss provisions, suggesting that banks may be expecting unpaid loan obligations to rise even further from here on out. What did you read there?
KEN LEON: Yes. And we look at it closely and do deep dives every quarter. I have already found the consumer price to be fairly stable, but of course you have to pay attention to credit card loans and perhaps also car loans. If you look at commercial properties, they are already reserved and they pass on these reserves as loan reserves which go into the profit and loss statement. What does it all mean?
We neither see a troubled industry in the corporate loan portfolio nor do we see any sovereign country risk. Of course, because of Citi's results, they had trading losses against Argentina and also Russia. But overall the loan book looks good. I would say as you get to the back half of '24, we may see banks releasing those reserves if the economy remains good and loan provisions are lower. It's time to reveal it, but that would have a positive impact on earnings in the second half of the year.
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