🏦 The Big Bank theory

Friday, July 16, 2021 by Robinhood Snacks | Disclosures
_Mood: Loan loss reserves, unleashed [Westend61 via GettyImages]_

Mood: Loan loss reserves, unleashed [Westend61 via GettyImages]

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Hey Snackers,

Fleets are going the way of the Quibi: After barely a year, Twitter is shutting down its Stories feature, whose life proved to be as fleeting as its name. Cause of death: "low usage."

Jobless claims hit a new pandemic low, and New York manufacturing activity notched a July record. The techy Nasdaq index dipped yesterday, as investors shifted into stocks that tend to move in tandem with the health of the economy (aka: cyclical stocks).

1. Banks profited thanks to reserves, but their win is really about the economy

Take it to the bank... Big Banks came through with expectation-beating earnings and booming profits. While the economy roared back to life last quarter, banks were busy making loans, collecting interest, and closing deals. That flurry of activity translated into big profits:

  • Goldman Sachs made a profit of $5.5B, compared to $373M in the same quarter last year.
  • JPMorgan Chase saw its profits more than double from last year to $12B.
  • Citi's quarterly profit more than 5X'd to $6.2B.

Bankers dropping bangers... Your quarterly reminder that Goldman's CEO is an EDM DJ. Last year, banks added billions in rainy day funds to their reserves. 17M Americans were newly unemployed, so banks set aside $$$ to prep for loan losses. Think: defaults on mortgages, credit cards, and biz loans. But economic healing happened faster than expected, so banks released those loan loss emergency funds.

  • That translated into profit. Chase got a $2.3B boost to its bottom line by releasing $3B in reserves. Citi got a $1.1B boost from reserves.
  • Record i-banking activity helped, too. Most of Goldman's growth was driven by its investment banking biz, which had its best second quarter ever.

A growing economy is a silver bullet for banks... and other cyclical stocks – aka: shares of companies that are closely tied to the health of the economy. Last year, banks were diving into fallout shelters, prepping for worst-case scenario bankruptcies and defaults. This year, banks are undoing that emergency prep. A key reason: the US economy is expected to grow at the fastest pace since the '80s this year. More money in American pockets means more $$$ in the coffers of US banks.


iCal it so I know it's real… Your backlog of doc appointments. As patients across the US rekindled their relationships with their doctors, UnitedHealth's quarterly revenue jumped 13% from last year. But profits at America's largest health insurer took a post-pandemic hit.

  • Cancel the checkup: As people avoided waiting rooms and germy hotspots last year, UnitedHealth had its most profitable quarter ever. You didn't use the insurance benefits you pay for monthly — so your canceled visit went straight into United's pocket
  • Fit me in ASAP: Now that people are getting their weird bumps checked out, UnitedHealth has to foot the bill. Profit plunged last quarter thanks to all those expensive doc dates.

Re-United… and it feels so "meh." Most industries are thrilled to see customers return — that’s not necessarily the case for health insurers. Insurers encourage preventive visits, which help avoid expensive – and dangerous – problems like heart disease or cancer. But they might prefer not to see customers go in for non-urgent visits like check-ups, and even pay big bucks to keep them away. That's why...

  • Telehealth: UnitedHealth expanded its telehealth offerings, which are cheaper than IRL appts, to all 50 states during the pandemic. Competing insurers Oscar, Amazon Care, and Kaiser Permanente also expanded virtual-first care plans this year.
  • Wearables: UnitedHealth also offers customers free Apple Watches or Fitbits… if they get their steps in.

Sometimes, not spending is good business… and can help boost the bottom line. The health insurance biz has a classic “do less” model: Just like Olive Garden doesn’t really want you to spend that gift certificate, health insurers often make less money the more their customers use their services. Ditto for car insurance companies.

What else we’re Snackin’
  • Crunchy: Chip giant Intel is reportedly in talks to make its biggest acquisition ever with chip-maker GlobalFoundries, which it could buy for $30B.
  • Burned: Johnson & Johnson chose to recall several Neutrogena and Aveeno spray sunscreens over a possible cancer risk.
  • Checks: As boosted child tax credit payments start to reach families, some moms see them as a road out of poverty.
  • Treasure: Economist Nellie Liang was confirmed as the Treasury’s undersecretary for domestic finance. First up on her to-do list: manage the ginormous federal debt.
  • Shibad: Dogecoin dropped 6% after co-creators Jackson Palmer and Billy Markus publicly criticized the crypto industry.
  • Rolling: Self-driving vehicle startup Aurora Innovation is going public via SPAC merger at a $13B valuation. It's promising autonomous vehicles by 2023.
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  • Earnings expected from Charles Schwab and State Street

Authors of this Snacks own shares of: Chase

ID: 1724710