Produced and edited by Greg Bobillot. Co-produced by Ben Marino. Filmed by Donell Newkirk.
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American banks are back. At the end of 2018, the market was telling us that a recession was coming and banks were falling into a black hole. Well, the market was wrong.
That is not entirely true.
As I was saying, fourth-quarter results showed us that US banks are in rude health, with plenty of capital and high profits. The six biggest had net income of $119bn in 2018, up 18 per cent.
Yep, it was a good year. As good as it's going to get for the banks. The world economy is slowing, and America's will follow.
You're smarter than the market now? Bank stocks were up 13 per cent in the last month alone.
Stocks fluctuate. Fundamentals remain. Short-term rates are rising, so deposit funding is going to cost more. And margins will get squeezed.
The big banks don't compete on rates anymore. They compete on service, big branch networks, and great mobile app.
This time is different then? Oh, good. Because banks are holding less money against loan losses than they have in decades. That always reverses crushing profits.
What Mr Grouchy here isn't telling you is that well-run banks perform well across the economic cycle. If you bought JPMorgan or Wells Fargo shares 20 years ago, you would have beaten the S&P 500, despite the crisis. With capital levels high, and technology driving costs down, they'll do it again.
You know who really does well across the cycle? Bankers, which is who banks are really run for. Morgan Stanley shares were down 25 per cent last year. The CEO got a big raise. And almost half of the revenues went to salaries.
The big banks sent $110bn back to shareholders in dividends and share repurchases in 2018. That is a tenth of their market value. How much more shareholder friendly can they get?
Well, they could start by avoiding scandals. Do you remember the whale at JPMorgan? Fake accounts at Wells Fargo? 1MDB at Goldman? Do you see a pattern here?
That's in the past. 2019 is going to be a great year for the banks.
Good times never last forever, least of all in the banking industry.