JPMorgan, Goldman Sachs and Wells Fargo each posted strong year-over-year equities trading and flat-to-lower fixed income. All three reported lower common equity Tier 1 ratios than in June, and all three showed higher costs tied to lending to companies.
Three of the first big banks to report shared more than a reporting date. Their results point to the same three trends, each of which will be tested against Citigroup, which also reported Tuesday, and Bank of America and Morgan Stanley, which follow.
One trading pattern
Equities trading revenue rose from a year earlier at all three: 72% at Goldman Sachs, 49% at JPMorgan Chase and 21% at Wells Fargo. Fixed income moved the other way: down 1% at Goldman, 4% at JPMorgan and 7% at Wells Fargo.
Against the second quarter, trading revenue shrank at all three: down about 17% at Goldman, 15% at JPMorgan and 17% at Wells Fargo. JPMorgan Chief Executive Jamie Dimon said client activity "did moderate somewhat during the quarter," and Goldman said its investment banking backlog was lower than at the end of June.
One capital pattern
Standardized common equity Tier 1 ratios fell at all three from the second quarter: to 12.4% from 12.9% at Goldman, to an estimated 13.9% from 14.2% at JPMorgan and to 10.0% from 10.3% at Wells Fargo. At JPMorgan and Goldman, risk-weighted assets grew. At Wells Fargo, common stockholders' equity fell by $6.2 billion, and the bank attributed the capital decline to unrealized losses from higher rates, which lowered accumulated other comprehensive income.
Buybacks diverged. Goldman repurchased $3.0 billion of stock and Wells Fargo $2.5 billion. JPMorgan's net repurchases were $664 million. It said it had reduced buybacks in line with its capital hierarchy and expects to deploy the capital over time at attractive returns.
One credit pattern
Consumer credit was steady to better. JPMorgan's card charge-off rate fell to 2.91% from 3.34% in the second quarter, and Wells Fargo's consumer charge-off rate was 0.70%.
The pressure showed up in lending to companies. JPMorgan added $452 million to reserves in its corporate and investment bank. Wells Fargo's commercial charge-off rate rose to 0.18% from 0.10%. Goldman's $368 million provision was driven mainly by impairments on wholesale loans. JPMorgan and Goldman did not identify the borrowers or industries involved. Wells Fargo pointed to commercial real estate and commercial and industrial loans.
Different outcomes
The patterns produced three different headlines. Goldman beat forecasts on both revenue and earnings. JPMorgan missed on earnings but raised its net interest income outlook. Wells Fargo beat on earnings with help from a tax benefit while missing on revenue.
In early premarket trading at 7:44 a.m. Eastern, Goldman was up 3.4%, JPMorgan up 1.0% after an early drop, and Wells Fargo down 1.3%. The Financial Select Sector SPDR Fund was up 0.8%.
Market implications
One reading is that the banks are in good shape and the year's trading boom is normalizing rather than ending. Year-over-year growth remains strong, consumer credit is improving, and at JPMorgan and Goldman lower capital ratios reflect lending and balance-sheet growth that should earn more over time.
A second reading is that the quarter marks a turn. Trading and banking activity fell from the second quarter, wholesale credit costs are rising at all three, and declining capital ratios could limit buybacks if the pattern continues.
What to watch
Bank of America and Morgan Stanley report Wednesday. If their equities desks, and Citigroup's, capital ratios and wholesale credit lines move the same way, the patterns here describe the industry rather than three banks.
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