Highlights from Day 1 of Bank Earnings Season

Day 1 of 1Q24 earnings season. Earnings season kicked off Friday with releases from several bellwether financials, and while bank stock sold off, there was a lot to like.

Investment banking fees tick up. Overall investment banking fees posted healthy sequential and year-over-year gains, driven by the stronger underwriting environment, particularly for debt. JP Morgan Chase cautioned that it remains to be seen how much of the first quarter volumes were merely pulled forward, rather than resetting the baseline. While M&A revenues remained weak, announcements began to pick up despite persistent regulatory headwinds.

Investing in investment banking. JP Morgan Chase CFO Jeremy Barnum suggested that the company’s investment banking franchise is under-earning despite the strong quarter, implying an ability to outgrow the market over the intermediate term. Citigroup and Wells Fargo explicitly called out ongoing investments in both personnel and technology to grow their respective investment banking franchises.

Figure 1: Total Investment Banking Fees

Figure 2: Debt Underwriting Fees

Figure 3: Equity Underwriting Fees

Figure 4: Advisory Fees

Card spend growing while credit reverts. Aggregate credit card spend volume was down seasonally in the first quarter but up 8% year-over-year for the three big card lenders reporting Friday. Delinquencies and charge-offs continued to rise back toward historical norms from unsustainably low COVID-era levels. Multiple banks noted that consumers remain financially healthy, with the caveat that the lower end of the consumer market is under some stress, and this is evident in the results for Citigroup’s Retail Services portfolio.

Figure 5: Consumer Credit Card Transaction Volume

Figure 6: Credit Card Receivables 90+ Days Past Due

Figure 7: Credit Card Net Charge-Off Rate

Distribution channels: Branch closures slowing while digital and mobile channels grow steadily. Wells Fargo still reduced its branch count by 1% during the first quarter, but branches were essentially flat for Citi and slightly up for JP Morgan Chase, which is essentially in line with Marianne Lake’s comments late last year. Meanwhile the digital and mobile MAUs continued to post mid-single digit annual gains.

Figure 8: Total Retail Branches

Figure 9: Active Digital Customers

Figure 10: Active Mobile Customers

Bank Stocks Trade Down 

Banks underperform into earnings season. The KBW Bank Index (BKX) and the KBW Regional Bank Index (KRX) both declined (and underperformed the S&P 500) in the week heading into earnings season, as well as on the first day of Q1 earnings season.  

Figure 11: The KBW Bank Index 

Figure 12: The KBW Regional Bank Index 

Interest Rates

Bear steepener remains in place. The bear steepener took a breather last week as the 10-year yield rose 13bps to 4.52%. The 2 year – 10 year spread widened by 12bps to -41bps.

Figure 13: The Bear Steepener Continues to Flatten the Curve

Figure 14: The 2-10 Inversion Increased by 2bps Last Week to -37bps

Fed cuts continue to drift into the future. The implied timing of the first rate cut, which until very recently was June, has now moved out to the September 18 FOMC meeting.  

Figure 15: Fed Funds Futures Imply the First Rate Cut Has Moved Out to the September 18 FOMC Meeting

Figure 16: Large Cap Bank Performance and Valuation

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