Goldman Sachs (GS) crushed first-quarter earnings, while JPMorgan Chase (JPM) left something to be desired...

The banking powerhouses released numbers within a few days of each other, in mid-April. And to be clear, neither bank's results were bad.

However, there was a clear split...

Goldman showed impressive growth for global banking and markets... as well as a continued rise in revenue from its platform solutions.

This performance earned some well-deserved hype. Shares are up 10% since the bank published earnings.

Meanwhile, JPMorgan didn't do nearly as well... at least, according to investors.

The company beat its own earnings expectations. It even posted a revenue surprise of $243 million over guidance. Yet since the announcement, shares are down 2%.

Today, we'll take a closer look at what's driving the difference in investor expectations... and what that means for the banking industry this year.

To understand the investor, you have to understand the client...

The market takes a different view of the two companies mainly because of who they cater to. JPMorgan represents consumers and small businesses. Goldman represents big businesses.

Goldman doesn't even have a consumer-banking unit... meaning it doesn't provide typical banking services like checking accounts or personal loans to individual consumers.

It also doesn't engage in commercial banking. So it doesn't offer services like business loans or checking accounts to companies, either.

Goldman's primary focus is on investment banking. The bank assists large corporations in raising capital through the capital markets. It acts as a middleman between suppliers who have capital and those who are in need of it.

And that business is booming.

In the first quarter of 2024, Goldman's global banking revenue surged to $9.7 billion... out of a total $13.9 billion for the quarter.

That was global banking's highest quarterly level since the same time in 2022. It was also a 15% year-over-year rise.

Remember, companies are borrowing any way they can. And with interest rates stagnating at 20-year highs, that just so happens to be through a lot of high-yield debt.

The core of Goldman's business involves facilitating this borrowing. No wonder investors are excited.

JPMorgan also has an investment-banking unit, but that revenue isn't enough to carry the business...

Investment-banking revenue did rise 27% year over year to $2 billion for the quarter. But that's tiny compared with JPMorgan's $42 billion total quarterly revenue.

Investors paid more attention to JPMorgan's biggest business... consumer and community banking.

CEO Jamie Dimon said he's confident that consumers still have excess money to drive this sector. But the numbers say otherwise...

Consumer and community banking had an "off" start to the year. Revenue was down from $18.1 billion to $17.7 billion quarter over quarter.

As interest rates remain high, consumer banking is getting tougher. Consumer borrowing power is waning... And credit-card and personal loan delinquencies are beginning to spike.

Said another way, JPMorgan's most important source of revenue may continue to take a hit.

We're seeing a similar situation across the banking industry...

Traditional bank lending is slow because of high interest rates. But large companies are accessing the bond markets to fill the gap. There are still opportunities for investment banks to get involved.

As long as interest rates stay high, there will be more activity in capital markets. That's good for banks like Goldman Sachs.

On the other hand, banks that focus on regular consumers may have trouble riding out this turbulent economy.


Joel Litman
May 3, 2024