Earnings

Earnings Season To Shine Light On Banks’ Take On The US Consumer

Parsing Banks’ Take On The US Consumer

Like clockwork, earnings season is here. Every three months, Wall Street takes stock (no pun intended) of how companies’ bottom lines are faring and whether top lines have traction. Financial news is abuzz with PE ratios, and how the Standard and Poor’s or Dow might fare on any given day, or minute to minute.

Drill down a bit, though, beyond the headline numbers, and there’s a wealth of data and discussion to parse, centered around the U.S. consumer and the sea changes tied to commerce, eCommerce, lending and credit. For those watching the payments sphere, the tea leaves are there for the reading, tied to mobile and digital banking adoption, to outstanding balances on cards, and to auto loans and mortgages.

Banks have traditionally been among the first companies out of the gate for earnings reports, and starting this week – Tuesday, as a matter of fact – the progression will remain largely the same.

Tuesday (Jan. 14) will see reports from Wells Fargo, JPMorgan and Citigroup, while Wednesday (Jan. 15) will mark releases from Bank of America and Goldman Sachs.

These are, of course, among the largest banks in the country, and there are indications that the fourth quarter should see relative strength in an earnings season that, overall – across all verticals, not just banks – sees earnings decline by 2 percent year on year, as estimated by FactSet.

By way of contrast, bank earnings are forecasted to rise by mid-single-digit percentages year on year.

Looking at Credit

It would not be far-fetched to expect the consumer to chug along as the engine that drives the economy. The holiday shopping season was strong. GDP estimates for the fourth quarter are still above 2 percent. Wages are still growing, though moderately, and the net pace of job creation has been positive (if uneven, as measured on a month-by-month basis).

It’s important to note, too, that the record highs notched in the stock market last year likely contributed to a wealth effect – where consumers, flush with robust portfolio performance, keep opening wallets. Interest rate cuts? With three in the rearview mirror over the past year, demand for loans was likely there, as mortgage rates remained low.

Coming out of the third quarter, which ended in September, credit card metrics from companies such as JPMorgan and Citi showed mid to high single-digit growth.

The continued investment in digital efforts should also mark results, as supplemental materials from banks show details on active mobile customers and branch counts. As an example, consider that for JPMorgan, active digital customers were up 7 percent in the third quarter, as measured year over year to 51.7 million. Active mobile customers were up 12 percent, and branch count was down 2 percent in the period.

Going Mobile

With similar growth at Wells, credit and debit card purchase volumes were up mid-single digits in the period. The company has noted a shift in use patterns as digital customers were up 4 percent and the individuals accessing the bank across mobile means was up 7 percent – and yet ATM transactions were down 6 percent in the period.

For further evidence of the shift toward ones and zeros in payments rather than dollars and coins, Bank of America will likely show growth in Zelle P2P payments, where 38 million active digital banking users continue to live their financial lives on their devices. The company said back in October that 26 percent of consumer sales were done digitally, and Zelle P2P transactions were up 76 percent year over year in the third quarter.

Goldman’s revamped reporting structure will also shed light, at least in a way, on digital consumer banking. As reported in this space last week, and per a filing with the Securities and Exchange Commission (SEC), the bank has created a consumer and wealth management unit that will reflect the results of the online lending platform, Marcus, and the credit card business, tied to its joint venture with Apple.

The filings show that total wealth management revenues stood at $1.1 billion for the quarter that ended Sept. 30, 2019. That is a bit above the $1 billion seen in the June quarter, and very slightly below the $1.1 billion seen in December 2018. Consumer banking, overall, contributed $217 million in the September quarter, slightly above the $216 million reported in the June 2019 quarter.

The detail, of course, will be freshened up by this week’s results, and we’ll get a look at the cumulative lending across Marcus, which at last count stood at $55 billion.

For all of these firms, of course, the devil is in the details – and the details are imminent.

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