The Big So What™
Yesterday, we published our 34th issue of our Inside The Buy-Side® Industrial Sentiment Survey®, which you can find here: https://lnkd.in/ebhiQTqu
This week, we’re covering U.S. Big Banks in our Sector Beat.
At a fundamental level, Big Banks appear to have made it through Q3 fairly well. Net interest income generally came in better-than-expected as companies were able to attract and price deposits at more favorable levels versus their smaller peers, while improved capital markets businesses aided some of the earnings beats.
However, in line with the sentiment found in our Inside The Buy-Side® Earnings Primer® and Industrial Sentiment Survey®, there was a lot of verbal hedging of these results by management teams on their calls, with many pointing to the current rising macro and geopolitical risks and those on the horizon.
M&A remains largely out of favor, partially a function of the current macro uncertainty and a higher interest rate environment. However, it is also indicative of the fact that investors have made it abundantly clear to companies that they are not in favor of transformational deals — something we have consistently observed in our proprietary research over the past year.
Another issue is the consumer, which continues to remain a key focal point throughout executive commentary and Q&A, with many of the Big Banks suggesting the consumer and small business remain “healthy,” but adding a side of skepticism about how long this state can last. We are seeing card companies like Discover increase their reserves in preparation for what could be a bumpier ride for consumer banking during the coming year and perhaps beyond, especially as student loan payments resume this month and cut into other discretionary expenditure buckets.
Key Themes:
● Macro — Executives Continue to Express Caution as the Latest Injection of Geopolitical Uncertainty Further Weighs on Macro Outlooks; “There Are Reasons to Remain Vigilant”
● M&A — Activity Predictions Vary from Bank to Bank, Though Most Concur Deal Activity is Primed to Accelerate Off a Low Base Once Macro Sentiment Improves
● Liquidity and Unrealized Losses — A Recurring Theme, Execs Caution Over Pending Regulatory Proposals that Could Ratchet Up Capital Requirements Including Coverage of Unrealized Losses
● Commercial Real Estate (CRE) — Office Category Continues to Perform Sub-optimally, with CRE Generally Considered a “Wild Card” in the Coming Months as Banks Pad Their Reserves
● Consumer Health — While Entering “This Cycle” from a Point of “Strength”, Mass Market Consumer Spend Continues to Retrench While Credit Card Delinquencies Tick Higher
