The Big Yawn: Bank Earnings

By SNW Asset Management via

Boring is good when it comes to bank earnings. And it has only taken ten years of regulatory change and a long economic recovery to achieve boredom. As you remember, it was ten years ago this fall that the S&P reached it pre-crisis peak, and only nine years since Lehman Brothers collapsed into bankruptcy and plunged the banking sector into its worst crisis since the great depression.

Earnings are all good so far this quarter, as evidenced by the reported results of the largest U.S. banks. Revenues are up 2%, broadly in line with economic growth, and earnings per share are up a more exciting 14%, with some growth in interest income, good cost control and excellent credit quality all aided by generous stock buy-backs. With the U.S. economy still in recovery mode, robust earnings and bank balance sheets as strong as they have been in generations, results are predictable and safe. Boring is good.

We all know banks are cyclical and the good times do not last forever, so the question often raised is can we fall back into the bad old days when banks were failing and it was all way too exciting?

We don’t see it.

The laws of economics have not been repealed and the economy will again fall into recession. Yet bank regulatory laws are far stricter today and banks are very well prepared for the next downturn.

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