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Bank executives were before Congress April 10, testifying about how sorry they were for past sins and how they've learned their lesson.
They haven't. They won't. They're bankers. Bankers will always go for the green, because to do otherwise is to lose out to a banker who will.
Thus, banking is ta heavily regulated industry. In its way, banking is a form of gambling. Without some restraint on their natural instincts, they'll lay the mortgage down at the dog track.
The first quarter of 2019 was very, very good for the big banks. Citigroup (NYSE: C ), Bank of America (NYSE: BAC ) and Goldman Sachs (NYSE: GS ) all beat the S&P 500 average gain of 11% (though that last one is having a rough go after earnings). Most are still trading at price to earnings multiples at single digits or in the low teens, even after beating analyst estimates.
Earnings as Expected
Good news was expected. The big banks featured "whisper numbers" that were ahead of official estimates - and those numbers were largely justified.
Citigroup, which got hit hardest of all the big banks for the 2008 collapse, was expected to earn about $4.1 billion, $1.78 per share, although its "whisper number" is for earnings of $1.84. (It earned $1.87 .) That was on $18.57 billion of revenue (a slight miss), meaning almost 22 cents on every dollar that came in hit the net income line. This is nice work if you can get it.
Bank of America expected earnings of about $6.5 billion, 67 cents per share, on revenue of $23.29 billion. Again, they were hoping for 69 cents, and taking almost 28 cents of every dollar to the net income line. Final earnings of 68 cents put them right in the ballpark.
For Goldman Sachs, analysts expected $5.05 per share, got $5.71 , but the stock fell after revenue of $8.81 billion fell short of the estimated $8.97 billion
These are good times, evidenced by Bank of America raising its minimum wage for employees to $20 per hour. How much better might things be if regulations "holding them back" were loosened. The Trump Federal Reserve, and Republicans, all agree .
Thus, the strategy last week was to play the victim before Congress. The harsher Democratic attacks on their past action, the more loudly they insisted they learned lessons and won't do it again. Like the Runyonesque gangsters at the Mission prayer meeting in Guys and Dolls . "Sit down, you're rocking the boat."
The Real Threat for Bank Stocks
Other than deregulation, the big threat to big banks lies in fintech, which can replace nearly all banking jobs with computers.
Square (NYSE: SQ ) is just one fintech going into small business lending, once the banks' primary means of support. The biggest mortgage lender is no longer Wells Fargo (NYSE: WFC ) but Quicken Loans , a fintech company. Small banks are partnering with fintechs to go after deposits against big banks on a level playing field. Since the bull market's start 10 years ago, the gains at all the big banks have been dwarfed by those at Charles Schwab (NYSE: SCHW ), an online broker.
In most industries, like technology, big players buy up the challengers and get even bigger. But the banks, most notably Wells Fargo, are still having their growth constrained by regulators. In Goldman Sachs' recent deal with Apple (NASDAQ: AAPL ) to handle credit cards, it's the tech company , not the bank, that's doing the heavy lifting.
The Bottom Line
Big banks are still where the money is. They're still the safest place to keep cash when a crisis hits, because if things get bad, they will be bailed out. They're still your best defensive play in an uncertain market.
Banks hate that and, facing the technology future, they have reason to.
Dana Blankenhornis a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org follow him on Twitter at @danablankenhorn . As of this writing he owned shares in JPM, SCHW, and AAPL.
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