Banking stocks’ financial results this earnings season: the scars of 2023

This afternoon (or morning if you’re in the States), Morgan Stanley and Goldman Sachs posted their financial results for the 2023 FY. The other financial services titans like JPMorgan, Citigroup and Wells Fargo all reported theirs last Friday.

Overall, the numbers were high. JPMorgan posted a record-breaking year in profits, Wells Fargo’s annualised growth was up nine percent.

And yet, overall, most banks fell below market expectations, with Citigroup posting a two percent loss and Wells Fargo’s net income down a whopping 40 percent. Even the mighty JPMorgan, the biggest winner of the banking sector this earnings season, fell short.

How can this be?

Scars of banking in 2023

The banking companies’ earnings prove that investors and traders have short memories.

Most of us, in January 2024, are thinking of 2023 as the year the United States seemed to magically pull off their promised soft landing, with rate cuts looking imminent and inflation (at least in America) looking temporarily beaten.

But that’s not all 2023 was. The year had the highest interest rates in decades for many countries worldwide. And thanks to Silicon Valley Bank, First Republic and Credit Suisse, it also saw the first banking crisis since 2008 – with the panicked bank runs to match.

Both of these had a direct impact on big lenders. And the proof is in the earnings season.

Risen credit, loan and acquisition costs

Credit costs rose almost universally for the banks, as part and parcel of the sky-high interest rates their customers have suffered this past year. For example, Citigroup’s total cost of credit more than doubled, up $185 million in Q4 compared to just $62 million in Q3.

As for the banking crisis, let’s take JPMorgan Chase & Co for instance, who acquired First Republic in the wake of its failing during the aforementioned banking crisis.

JPMorgan mentioned First Republic a whopping 33 times in their statement on Friday, so influential to the bank’s results were they to the results.

While deposits were down three or four percent across the board, average loans firmwide were up a whopping 17 percent – but only four percent if First Republic was excluded. And while First Republic certainly boosted the company’s revenue, it increased their costs and expenses too.

Goldman Sachs: an exception to the rule

Although Goldman Sachs did report a drop in net earnings, it also beat market expectations in many areas – most notably in that it almost doubled its profits in 2023.

While titans like JPMorgan and BlackRock focused on widening their net with big acquisitions in 2023, Goldman Sachs actually narrowed its focus by agreeing to sell GreenSky platform in Q1 of 2024. Coincidence?