Strong bank earnings boosted by consumer
Strong earnings for the final quarter of 2019 show a healthy bank industry and an even healthier U.S. consumer, although estimate-beating bottom-line earnings also got a generous boost from heavy buyback activity.
"Our results continue to reflect the strength of the U.S. consumer in the biggest economy in the world," Bank of America (BAC) CEO Brian Moynihan said while kicking off a conference call to report fourth-quarter results on Jan. 15.
JPMorgan Chase (JPM) CEO Jamie Dimon said the U.S. consumer, which represents 70% of the U.S. economy, should remain a bright spot for growth through 2020.
"Our outlook heading into 2020 is constructive, underpinned by the strength of the U.S. consumer," Dimon said on his company's earnings call on Jan. 14. The largest U.S. banks reported earnings for the fourth quarter this week, showing estimate-beating earnings despite challenges on historically low interest rates.
Net interest margin, a measure of the interest collected on loans minus interest paid on deposits, has continued to face pressure despite the Federal Reserve's three rate cuts in 2019.
Among the four largest American banks, only Citigroup (C) saw a quarterover-quarter increase in net interest margin, up seven basis points.
Citi CFO Mark Mason told reporters Jan. 14 that with the Fed expected to make little moves on rates in 2020, he still expects a lagged effect of the 75 basis points of interest rate cuts to impact net interest revenue this year.
"What we've assumed from a planning point of view, having looked at multiple scenarios, is more similar to what's in the forward curve right now, which is for one additional more cut in the back end of 2020," Mason said.
Vining Sparks research analyst Marty Mosby told Yahoo Finance's The Ticker on Jan. 14 that the "compression in margin is actually slowing," suggesting brighter days for interest revenue in 2020.
Banks also saw a boost to revenue off of strong yearover-year fixed income trading. Compared to a volatile 2018 that saw fixed income tank among the larger banks, the largest financial firms appeared to see a solid rebound in bond trading revenues.