This week marked the official start of earnings season with major US banks reporting quarterly earnings. JP Morgan Chase led the banking sector higher as the bank posted record revenue for the quarter, beating analysts’ estimates. Both quarterly revenue and profits increased by 8% due to robust consumer banking operations.

On the negative side, investors were disappointed with Goldman Sachs results as profits came in worse than expected. The bank reported a 26% decline in profit with the firm’s investing and lending division dragging down its quarterly results.

Net Interest Margins were once again one of investor’s key focus following two rate cuts by the United States Federal Reserve since the previous quarter’s earnings season. Net Interest Income (NII) accounts for the difference in interest rates offered on deposits and the rates charged on loans, which are both sensitive to what the Fed decides.

In fact, earlier in the quarter major lenders had warned that NII would be lower than guidance following the Fed’s shift to a more accommodative monetary easing policy. Wells Fargo NII came in slightly below estimates with its margin falling to 2.66% from 2.94%.

Similarly, Citigroup lending business posted weaker than expected results with net interest margin below expectations. Meanwhile, Bank of America reported increased interest income due to a 7% growth in loans and 3% growth in deposits. JP Morgan also managed to expand its net interest margin.

A glance at the major banks’ loan book points to growth and some misses on expectations. On average, the banks reported average loan growth of 1% year-on-year. Citigroup reported an increase of 2% in end-of-period loans. On the other hand, JP Morgan Chase missed expectations due to weaker mortgage loan growth. However, the latter’s results were partially offset by positive results on the consumer side.

Consumer lending growth supports bank earnings

This quarter’s bank earnings results signalled a healthy US consumer as banks across the board reported growth in their retail banking, especially in the credit card business.

The most notable impact was reported by Citigroup, with the bank recording an 11% increase in revenues in the branded cards business. JP Morgan Chase CEO Jamie Dimon reiterated that “the consumer remains healthy with growth in wages and spending, combined with strong balance sheets and low unemployment levels”. The bank reported that card loan growth stood at 8% year-on-year.

Disclaimer: This article was issued by Rachel Meilak, CFA Equity Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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