Goldman Gains; Fargo Forgotten; B. of A.? No Way
Welcome to the Bank Parade
When I was a young trader, my father took me to New York City to see a banking man.
He said: “Son, when you grow up would you be a trader at Goldman Sachs, Morgan Stanley or Citibank?”
He said: “Will you defeat them, your losses and all the market bears? The short trades they have made? Because one day, I’ll leave you, a phantom in the Wall Street machine, to join the bank parade.”
Sometimes I get the feeling that bank stocks are undervalued, and other times, I feel like they should fall.
But through it all, stocks rise and fall … the violence in the streets. Goldman Sachs Group Inc. (NYSE: GS) heard the call. They’ll carry on. They’ll carry on.
(For that one My Chemical Romance fan out there, I see you, and you probably want to beat me now.)
Bank parade! No fewer than five of the biggest financial giants in the land released their quarterly results since yesterday’s close. I call that a parade.
Still, despite the flood of financial figures, Goldman Sachs arrived as the parade’s grand marshal.
Goldman’s third-quarter earnings of $9.68 per share crushed the consensus target by 74%. Revenue spiked 30% from last year to $10.78 billion, beating expectations by $1 billion.
Trading was Goldman’s forte during the quarter, with revenue from bond and equity trading jumping 29%. However, asset management was a surprise leader, as revenue skyrocketed 71% to $2.77 billion.
Numbers, numbers numbers! So many numbers, Mr. Great Stuff. What’s the real deal Holyfield on Goldman?
Despite quarterly results that’d send any tech stock to triple-digit gains, GS shares barely stayed above breakeven. It’s a trend that’s dominated the financial sector for all of 2020.
The keyword here is risk.
Investors contend with an election and a pandemic, and no one knows how either will play out when it comes to the financial sector. Will credit defaults rise and decimate banking revenue? Will economic growth slow and begin to eat into trading returns?
Those are just a few of the questions limiting upside potential for stocks like Goldman. After 2008, the credit default situation is probably the biggest detractor here. We all remember the financial crisis, and no one wants any part of that mess again.
So, if you’re invested in financials like GS, tread with caution. They appear to hold up well for now, but there is plenty of risk and uncertainty underpinning the sector.
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While Goldman trades, Bank of America Corp. (NYSE: BAC) fades. The big BofA beat on earnings but missed on revenue in the third quarter.
The reason? Apparently, BofA can’t trade. Trading revenue only rose 3.6% to $3.34 billion. 3.6%? That’s not even a shadow of Goldman’s 29% gain. It’s no wonder BAC shares fell more than 4% today and are down more than 31% this year.
That Wells Fargo wagon might as well be a moped with a basket at this point. Wells Fargo & Co. (NYSE: WFC) proved that it gets worse than BofA in the banking sector.
The company’s third-quarter results missed both top- and bottom-line expectations, even as revenue and earnings fell year over year. What’s more, both consumer and business lending declined despite rock-bottom interest rates. WFC dropped more than 5% on the report.
Boring Banking Bits
Regional bank earnings were also on tap today. PNC Financial Services Group Inc. (NYSE: PNC) beat revenue expectations with a 15.1% year-over-year jump, but earnings came up shy. Credit concerns and allowances for loan and lease losses rose considerably, topping $5.75 billion.
Elsewhere, U.S. Bancorp (NYSE: USB) posted a 13.9% drop in earnings and a 0.7% rise in revenue. Woo… The song remained the same with USB, as low interest rates and higher credit loss provisions ate into quarterly results.
PNC was down about 2%, while USB rose 1%.
If you’re tired of banking news, I feel bad for you, son. I’ve got 99 problems and a lack of earnings ain’t one — finally!
But not everyone is dancing through the streets with Mr. Great Stuff, joyous for the glut of morning earnings like freshly settled stock market dew. If any of you invested in the banking ilk, you have either my condolences or my congratulations.
Yes, banks are the chocolate box of surprises that no one ever asked for already, and we’ve only dipped a toe into earnings season. It can be a bit too much fickleness to take in … even without the financial crisis memories burning in the background.
That’s why we’re looking for your take on the financial sector in today’s Poll of the Week!
Speaking very generally here: How do you feel about banks? Indifferent? Bored to tears? Ecstatic by earnings that’d make tech losses weep? Do you live, breathe and need every bit of banking news you read?
If you’re in the mood to spin your yarn on banks for tomorrow’s edition of Reader Feedback, drop us a line right here! Until then, why not answer our poll?
We’ll ramble on the banking gamble next week once we get your take. So click below to be a part of the conversation!
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We’ll circle back on this next week. Same time, same place, same Great Stuff.
Great Stuff: Hey Man, Nice Sachs!
You know, I was looking forward to this swath of earnings reports to get a gauge on how the rest of earnings season’s tone will shape up. Gee, can you say “mixed bag?”
At least we get reports from Del Taco and Aphria tomorrow. Pot stocks and tacos never did anyone wrong, right?
If you’ve got thoughts, questions or snarky hot takes on earnings, we’re interested. I mean, we’re interested in any subjects you’d like to ramble on about, so share away with the rest of your fellow Great Ones!
Let us know what’s on your mind at GreatStuffToday@BanyanHill.com. We’d love to feature you in tomorrow’s edition of Reader Feedback.
Until next time, stay Great!
Editor, Great Stuff