Bloomberg Risk TakersLast month Meredith Whitney spoke to Maria Bartiromo on CNBC’s Closing Bell and said she was more bullish about U.S. Equities than she had ever been in her career.
That was big news in this uncertain environment. Just as importantly, though, she specifically mentioned two financials she liked during that call — Bank of America and Discover.
Now that earnings are in we know how they’re is doing.
Bank of America, as we know, missed analyst expectations by 2 cents on earnings per share and beat slightly on revenue. The bank was dragged down by a 20% drop in fixed income, currencies and commodities trading (just like everyone on the Street) and real estate losses that widened from $1.1 billion in Q4 to $1.3 billion.
Revenue from the bank’s mortgage business was down as well — Part of what Whitney, last fall, called the “endless beat down” of legal fees Wall Street would experience for a long time to come.
All that said: What Whitney likes about Bank of America has nothing to do with any of that. She likes cost cutting, which Bank of America did and is continuing to do. In fact, CEO Brian Moynihan said it was one of the reasons the bank’s trading operations took a hit.
Whitney also likes businesses she knows that Wall Street has traditionally considered boring, and those businesses won this earnings season.
Bank of America was essentially carried by its brokerage business, which posted a 7% revenue gain. It’s not “sexy” but the money sticks around since investors don’t tend to change brokers a lot.
Discover, on the other hand, beat expectations all around in its earnings announcement this morning. Bloomberg’s analysts had EPS at $1.12, Discover posted an EPS of $1.33. Meanwhile net income rose by 3.5% to $673 million. Lending expanded while delinquencies contracted.
So what does this tell us about the U.S. economy? It’s pretty simple. Americans feel OK expanding credit (and debt) but only to a point. They’re not ready to buy houses, but they are ready to get a new credit card.
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