Earnings

Banks’ Earnings Show Digital Traction Amid Buoyant Consumer Spending

Banks’ Earnings Show Strong Consumer Spending

There are a few common themes among big bank earnings reports.

The U.S. consumer is strong, and the ripple effects of strong U.S. consumer spending is carrying over to other areas where banks get their bread and butter.

And, increasingly, digital conduits are gaining a share of consumer and commercial spending.

Wall Street being Wall Street was focused, at least in part, on trading and asset management revenues, which rebounded strongly in the fourth quarter, up double-digit percentages in most cases amid record high stock markets.

And to be sure, the boost in what we might term “traditional” investment activities helped bring banks — with the exception of Well Fargo, which has its own set of company-specific issues to work through — to close the year with double-digit earnings growth in the period.

We might assume that, at least for now, the reports of the death of consumer spending — viewed by at least some observers to be at risk amid trade wars, for example — have been greatly exaggerated.

Consumer in ‘Very Strong Shape’

“The U.S. consumer remains in very strong shape, both from a credit perspective and spending sentiment,” JPMorgan Chase Chief Financial Officer Jennifer Piepszak said in remarks after earnings were released, where total profits were up 21 percent.

With an eye on segment performance, she said JPMorgan Chase card, merchant services and auto revenue were up 9 percent driven by higher card NII on loan growth as well as the impact of higher auto lease volumes.

Card loan growth was 8 percent higher in the quarter, and sales were up 10 “reflecting a strong and confident consumer during the holiday season.” Underpinning that strong sentiment is the fact that the labor market is strong, and in terms of interest rate policy, the Federal Reserve and the ECB are “on hold.” That positive consumer mindset has also helped foster positive sentiment among corporate and commercial customers of the bank, said Piepszak. Credit costs were down year over year amid a “favorable” environment, and where charge offs were in line with expectations.

Citi’s own profits were up 15 percent in the fourth quarter. Overall, international and North American consumer banking were up 4 percent, as measured by year-over-year revenue growth. In the U.S., branded card sales grew by 10 percent, defined by CEO Mike Corbat as a “healthy clip,” and where branded cards revenues stood at $2.4 billion. Digital deposits were strong across existing and new customers, with the total at $6 billion for the year, versus the $1 billion that was raised in 2018, as detailed by CFO Mark Mason.

Spending, Done Digitally

And, with another nod to the digital landscape and its widespread adoption among consumers, Bank of America’s numbers showed that peer to peer (P2P) payments were up 76 percent year over year in the fourth quarter. Overall, consumers made 95 million payments worth $23.8 billion using Zelle. As much as 29 percent of all consumer sales were done digitally, and 53 percent of all digital sales came across mobile devices.

CEO Brian Moynihan said there were more than 10 million customers using Erica, the firm’s artificial intelligence (AI) agent. With a nod toward commercial and business banking digital efforts, there are 500,000 CashPro online users.

In reference to overall consumer spending at Bank of America, total credit and debit spend was $167.2 billion cross U.S. credit and debit cards.

Goldman Sachs noted in its results that its Consumer and Wealth Management segment generated net revenues for the year at $5.2 billion, and where for the quarter, growth was up 17 percent year over year. Goldman, of course, has been busy focusing on growing its retail footprint across its digital channels, including Marcus, the digital bank, where deposits from the U.S. and U.K. gathered $24 billion over the course of the year to stand at $60 billion at the end of the most recent quarter. Funded consumer loan balances were $7 billion from Marcus and $2 billion from the credit card lending tied to the launch of Apple Card.

And, while it can be argued that Wells Fargo has its work cut out for it, at least in terms of grappling with regulators and with the continued fallout from various scandals hitting various units, the supplemental materials from the company showed some bright spots mirroring the results seen at banking peers.

Wells noted that primary consumer checking customers were up 2 percent year over year. Debit card point-of-sale purchases, as measured by volume, were up 6 percent to $95.2 billion, and general-purpose credit card volumes were up 4 percent to $21 billion in the quarter that ended in December.

Digital (online and mobile) active customers were up 4 percent to 30.3 million. Mobile active customers were up 7 percent to 24.4 million.

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