by Rich Edwards Jan 26, 2024

Mixed results in 4Q, RTP rolls on

The contradictory takes on banking profits, The Clearing House commits to real-time payments

Citi CFO's comments setting expectations for a seeming reversal of fortune in 4Q

The week a look at the continued mix messages from banking earnings calls. Also, MasterCard and The Clearing House double down on real-time payments.

1. Reading bank earnings

Gina Heeb at the WSJ reports on the muted results of regional banks in 4Q.

Profits dropped sharply at regional banks in the fourth quarter, including at the bigger ones that have generally fared better than their smaller peers. Net income was down roughly 90% from a year earlier at KeyCorp, around 70% at Citizens Financial Group and more than 40% at PNC Financial Services Group. Truist Financial swung to a loss.

We looked at JPMC’s 4Q blowout last week. Among the big banks, Citi has a more muted 2% growth in revenue but swung to a $1.8B loss for the quarter.

But that might not be the whole story.

Scott Galloway and Ed Elson of Prog G markets argue from an investor standpoint, over what to take away from the mixed results in banking in 4Q, and in particular, Citi’s deliberate efforts to take reserves that muted performance.

It was almost like a kitchen sink for every Bank this quarter because there was no consistency in the profits. JP Morgan’s quarterly profit was down 15%, Morgan Stanley down 32%, and then Citigroup has this $2 billion net loss, which is just crazy….

But in reality, if you look at the top line, if you look at the revenue, things are actually fine. The revenue is a little down, but it’s stable. The net interest income is up. As you say, because the interest rates have risen. And then their annual revenue is also up. So the big picture is actually pretty good.

I think we often think that the bottom line, the profit, is the number that tells you the full story. But sometimes, in rare cases, that’s actually not true. And in this case, the truer, more accurate number that illustrates what’s really happening here is the top line.

The lesson you want to look at gross margins. You want to look at growth. You want to look at topline growth, all of those things to get a full picture because earnings are a really difficult way to get a read on a company

Noted was Citi’s CFO Mark Mason’s release on many one-time items Citi recognized in the quarter, posted two days before the earnings announcement:

As you’ve heard me say before, we are a bank for all seasons. Our ability to digest these charges and take reserves against potential future challenges is a testament to the strength and stability of our firm and how we continue to weather all types of market environments.

2. The Clearing House and MasterCard push on with real-time payments

The Clearing House and MasterCard extended their partnership on real-time payments this week.

Lee Alexander, CIO of TCH, reiterated both firms’ commitment to broadening the adoption and volume of RTP payments in several key areas.

Alexander highlighted four key use cases where banks and financial players have expressed a desire to focus on.

The first is frictionless account transfers, allowing customers to easily move money between different accounts, such as from a bank account to a brokerage account, in a quick and seamless manner.

The second opportunity is around earned wage access, with the gig economy accelerating the demand from workers to receive their wages immediately after completing a shift.

The third is instant person-to-person (P2P) payments — and Alexander noted that instant means truly instant, not just in-name only.

The fourth area where RTP can drive differentiation and provide true value is across business-to-consumer (B2C) payments by allowing banks to bill their clients and make instant payments for services such as insurance payouts and loans, as well as enabling businesses to pay consumers instantly.

“Obviously, the ways these materialize for the banks’ customers is different … but we’ve spent a long time asking the banks what would be most valuable to their user population, and these are the primary use cases,” Alexander said.

What remains to be seen is how TCH’s offering will compete or coexist with FedNow, and in particular, the concerns about fraud and risks to both institutions and their customers.

That’s it for this week. To go into your weekend, here’s a top-tier recommendation for the 2011 documentary Buck.

“Solvitur en modo, Firmitur en rey -
Gentle in what you do, Firm in how you do it.”

Horse trainer Buck Brannaman

The film looks at Brannaman’s past in rodeo and film production, but is much more about leadership than training horses. A short clip:

And one last thing: we’ve launched a new podcast by and for Community Banking Leaders. It’s called Behind the Vault: Conversations with Customer-Driven Bankers. Check it out, and if you or someone at your institution would like to be highlighted and share your story, apply here ->

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