To The Moon

The third quarter of 2023 has marked the commencement of earnings season for prominent U.S. banks, including $JPMorgan Chase(JPM)$, $Citigroup(C)$, $Wells Fargo(WFC)$, $Bank of America(BAC)$, and $Goldman Sachs(GS)$. These institutions have collectively reported robust results, primarily attributed to substantial interest income and diminished credit costs. Despite these impressive figures, the CEOs of these financial giants maintain a sense of caution, anticipating that such stellar outcomes might gradually return to a more normalized state as the Federal Reserve's interest rate hikes influence the broader U.S. economy. In response to these anticipated changes, banks are taking prudent measures to fortify their balance sheets and enhance their Common Equity Tier 1 (CET1) capital ratios, thereby fortifying their resilience in the face of potential economic downturns.

Among these five banking institutions, JPMorgan Chase distinguishes itself with its notable revenue and net income growth. Their net revenue surged by 15% year-over-year (YoY), while net income witnessed a remarkable 24% YoY growth. It is worth noting that JPMorgan's recent acquisition of First Republic Bank significantly contributed to this success, with net income, inclusive of First Republic, registering a remarkable 35% growth. This growth is primarily attributed to the expansion of Net Interest Income (NII), driven by elevated interest rates and escalating revolving balances within Card Services. Conversely, Goldman Sachs appears to be grappling with challenges, with a decline in Mergers and Acquisitions (M&A) transactions impacting their performance. The firm has also reported a decrease in net revenues from Fixed Income, Currency, and Commodities (FICC) intermediation, largely stemming from significantly reduced net revenues in currencies and commodities, as well as diminished net revenues in credit products.

The CEOs of these banks have also shared their outlook on the economic landscape and the financial services industry. The JPMorgan CEO, Jamie Dimon, underscored the vitality of U.S. consumers and businesses, yet expressed concerns that consumers are depleting their cash reserves. He emphasized the persistent tightness in labor markets, elevated government debt levels, and substantial fiscal deficits as factors heightening the risk of inflation and further interest rate hikes. Quantitative tightening's long-term implications, involving reduced liquidity within the financial system, remain shrouded in uncertainty. The ongoing war in Ukraine and recent events in Israel have the potential to trigger significant repercussions across energy and food markets, global trade, and international geopolitical relations, thereby intensifying the overall volatility. Consequently, the prevailing sentiment calls for caution, given the extraordinary fiscal and monetary stimulus in place, and the uncertainty surrounding its durability, prompting a readiness to navigate through diverse scenarios. Dimon further cautioned against unwarranted optimism in the markets, citing historical inflection points like those observed in 1987, 1990, 1994, 2000, and 2009.

In view of the 30% dividend tax, the author refrains from investing in U.S. banks, instead opting to leverage the results of these institutions to evaluate their impact on Singaporean banks such as DBS, OCBC, and UOB. These results underscore that while economic, geopolitical, and credit concerns persist, opportunities for growth and resilience remain. Particularly noteworthy is the role that financial institutions play in facilitating and financing government-driven fiscal projects, which amplifies the significance of commercial business and institutional services in driving growth within the financial sector. This shift in focus necessitates adaptations by banks to align with evolving demographic and economic dynamics, placing a premium on having ample capital reserves as a safeguard against potential economic downturns.

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