Goldman Sachs could scale back its financial targets, according to Reuters. Yahoo Finance's On the Move panel discusses.
ADAM SHAPIRO: I want to turn to one of the banks that is going to be reporting. That involves Goldman Sachs, which there's that report out of Reuters which, you know, they had their first investor day in January setting targets for the bank. Now they might have to review those targets. And this was something that caught your attention. Not only was Julia La Roche there in January, but Julie Hyman this morning-- this is a big issue that you thought investors needed to pay attention to.
JULIE HYMAN: Well, I think it's something to keep an eye on, just in terms of whether this is going to mean revisions for some of the other banks. This is a Reuters report, as you mentioned, that Goldman is reviewing the targets it set earlier in 2020. I mean, I think any company-- let alone any bank, but any company-- that's not reviewing its targets, given the year that we have had, would perhaps be unusual.
But I think to Jim's point a few moments ago, we have to pay attention to what companies are going to be doing in terms of provisioning. A bank like Goldman, which is more recent in the sort of consumer-facing business, is also going to be very interesting, because they've been expanding their Marcus consumer offering over the past couple of years. Anyone who's been sort of tracking online what kinds of rates they offer on deposits, they've been going down, as we have seen rates overall going down.
So what kind of effect is that going to have on the bank should be quite interesting. And that's a theme, I think that we will be seeing at the banks broadly. What are net interest margins going to be looking like on that consumer business?
ADAM SHAPIRO: Well, Brian, which banks I mean, are you focused on? Because investors right now seem to be optimistic. I'm looking at the major banks. They're all trading higher right now.
BRIAN CHEUNG: Well, as Julie mentioned, net interest margin will be something that people are dialed into. But it's going to decrease, most likely. That's because the Federal Reserve interest rates near zero have given these banks very little operating room to make revenue, because keep in mind the banks lend long, and they borrow short. So if the curve is this flat, it's really difficult to make money.
For the large investment banks, that means that the major thesis is going to be, can they compensate for losses in those traditional banking businesses with their capital markets desks? Their fixed income equity trading which we saw was very strong at the likes of JPMorgan Chase, Goldman Sachs, Morgan Stanley during the second quarter, we do know that broadly speaking, banks that don't have any sort of capital markets desks-- think about those regional to small community banks that are still publicly traded-- those are going to be the ones that are likely going to get slammed in this environment, because they don't have that crutch to lean on.
KBW said broadly, this is not a balance sheet issue like 2008 and 2009. The bank stocks have been unloved not because people are worried about per capital adequacy, but because these banks are just simply beholden to the economic uncertainty that we face.
If you think there's going to be a recovery coming in the fourth quarter or 2021, buy these bank stocks. But if you don't think that's going to be the case and you worry about a double dip back into a recession, you should stay away from these banks. And I think that's going to be the large problem and the narrative going forward.
Keep in mind, we'll get those earnings before the bell from Citi and JPMorgan Chase tomorrow morning. And that'll give us our first clues to, really, what is the true state of this industry?
ADAM SHAPIRO: And I just want to let everybody know, as Brian plugs what's going to be reporting tomorrow, Citi is trading higher almost 2% right now. And we're going to be keeping an eye on all of the banks.