In this clip, Industry Focus host Michael Douglass and contributor Matt Frankel give the 10-minute version of big bank earnings. They look at investment banks Goldman Sachs (GS 1.61%) and Morgan Stanley (MS 1.20%), commercial banks Wells Fargo (WFC 1.25%) and U.S. Bank (USB 0.71%), and universal banks JPMorgan Chase (JPM 2.02%), Bank of America (BAC 2.14%), and Citigroup (C 2.50%).

A full transcript follows the video.

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This video was recorded on Jan. 22, 2018.

Michael Douglass: Shall we start with the universal banks?

Matt Frankel: Sure.

Douglass: Awesome. Citigroup. They saw their net credit losses grow by 7% year over year. For me, this is always a wee bit of a concern, because things may look good now, but it's a different ballgame when the credit cycle turns.

Of course, frankly, when you look at what the Fed is guiding in terms of additional interest rate hikes, it looks like the good times could be here for a while, so I do understand why they're potentially taking on more risk. And keep in mind as well, even with that net credit loss growth, they're still at the bottom of the net credit loss ranges they've said they're comfortable with. So if you trust management and you think that they are running the bank well, then you probably feel OK about that.

One other thing I'll highlight: They're still winding down their legacy assets, mortgages in particular, which will keep impacting top and bottom line results for a while going forward. But overall, I thought things looked pretty good at Citigroup.

Frankel: They did. One thing I would like to point out about banks like Citigroup that have big credit card businesses -- a lot of Citigroup's loans come from credit cards. I have a Citigroup credit card in my pocket as I'm talking. Credit card purchase volumes have shot up over the past few years. It's a sign of growing consumer confidence and a general healthy economy. But at some point, you have to keep an eye out for the credit card losses to start creeping up, which, it looks like that might be happening now.

As you said, Citi's net credit losses went up 7% year over year. A few of the banks are starting to see a small uptick in credit card -- I know, one company I follow closely is Synchrony, which we talked about in another podcast, just because they're credit card specific, it's really good insight on the industry, and theirs have really started to creep up over the past few quarters. So for any bank, I would say, that's heavily into credit cards -- Citi, Bank of America, JPMorgan Chase, Wells Fargo is definitely big into credit cards -- any of those, keep an eye on the default rates over the next few quarters. This can give you clues that the economy might be getting a little ahead of itself.

Douglass: Yes. That's good. Frankly, Matt and I love financials, and a big part of that is thinking about conservatism in who you loan out to. We tend to, I think both, get a little bit uncomfortable as folks start lending more and more and more, and therefore increasing their risk profiles.

With that in mind, Bank of America, really good results on the consumer banking side. Deposits are up 8%-9%, loans up about the same amount. Given that's where they're getting their best return on average allocated capital, which is 24%, it makes sense to focus their efforts there where possible. Brokerage assets, of which my accounts are a part, are up a stunning 22%, which reflects some really impressive inflows in addition to, of course, good market returns. Frankly, they're filing on most cylinders. You look, they've reduced branch count by 41 just this last quarter. Mobile banking active users are up 12% year over year last quarter. Across the board, it looks pretty good at Bank of America to me.

Frankel: Citigroup has done well. Bank of America is hands-down the biggest transformation since the financial crisis.

Douglass: Absolutely.

Frankel: Like you said, in mobile, about a quarter of Bank of America's deposits now come from their mobile app. A quarter of the entire bank's deposits. This is a big boost in efficiency for them. They're firing on all cylinders. Their brokerage assets are up because the narrow-edged platform is excellent. It was a very smart move, being able to integrate that into Bank of America's accounts. It gives them a big leg up over a, say, a TD Ameritrade or an E*Trade, just in terms of being able to cross-sell a great product to their customers, and reducing branch counts, being more tech efficient, it's been a recipe for success for them so far. Bank of America is the new Wells Fargo, as I said in one of my recent articles.

Douglass: I think that's probably fair. There's good reason to see it as a darling. And JPMorgan, let's be clear and give them due credit as well. They've had a pretty good quarter as well. A wee bit weaker on the trading side, of course. But frankly, wealth management, revenue of $3.4 billion, it's up 9% year over year. Net income is up 12% in that division. Consumer and business banking up 16%, card up 11% year over year. Twenty percent growth in revenue; 39% gross in net income for commercial banking. For me, it's hard to overstate how well JPM is doing ex-trading, and how good it looked coming out of this quarter's earnings. I'll also particularly call out the credit card again. Given how much they've spent and how much they've done to make things like Chase Sapphire really work with consumers, it's great to see all of those initiatives panning out so well for them.

Frankel: If trading revenue turns around, JPMorgan could be a force to be reckoned with.

Douglass: Right.

Frankel: This was their best quarter in a long time. We were actually, before the podcast, chatting about how JPMorgan has had a few questionable quarters. But this was a good one.

Douglass: Yeah. Let's head over to the investment banks. Much, much more mixed picture coming out of them. These are, again, Morgan Stanley and Goldman Sachs. For me, one of the big things that I came out with is, Morgan Stanley said, advisory revenues declined, and I'm quoting here, "on lower levels of completed M&A activity." Goldman Sachs, of course, saw an increase in M&A transactions and maintained its first-place spot. So when you are struggling to get M&A deals and your competitor is getting them, that's a pretty bad sign.

Frankel: Yeah. And to be fair, Morgan Stanley had a very good fourth quarter last year, so the fact that it dropped isn't necessarily all that it appears to be. But you're right, that sounds kind of like a sneaky way of saying they lost a little bit of market share. But Goldman's M&A business was firing on all cylinders. 2017 in general was a great year for M&A activity. As generally happens a few years into a bull market, companies can get more from and acquire, companies have more to spend -- it's just a great environment. So that's definitely a big point of concern.

Douglass: Of course, flip side, Goldman Sachs had its own points of concerns. Their wealth management had negative outflows for the quarter.

Frankel: Yeah. It was only about $1 billion, but this is the first time in a while I noticed Goldman Sachs had money flowing out of their asset management business. Their assets under management are definitely up for the year, just because the markets have been doing so well. But this means people withdrew $1 billion more from Goldman Sachs' brokerage accounts than they put in. Morgan Stanley, on the other hand, saw about $20 billion of inflows, meaning that people are pumping money into those accounts. So that's, on the other hand, an area of concern for Goldman that's not so much of an area of concern for Morgan Stanley.

Douglass: Yeah, it's funny, these two banks each did better in one area than the other and flubbed it a little bit on the other. So that's certainly something for us to dig more into. I'll certainly be interested to see how that works next quarter. Let's turn to the commercial banks -- USB and Wells. Want to talk USB first?

Frankel: Yeah. USB is one of the most boring banks to talk about because they always do well.

Douglass: [laughs] Darn, so hard!

Frankel: I mean, return on equity of 13.4%, return on assets of 1.33%. That's the best you're going to see out of the big banks every quarter. One thing I will say about USB, and Wells Fargo, for that matter, these banks actually got a tax benefit. They were carrying deferred tax liabilities on their balance sheets. USB actually got a $910 million benefit, Wells got a little over a $3 billion benefit from tax liabilities that they would have had to pay at that 35% rate but are now being valued at a 21% rate. So they actually got a nice benefit from that. And the ROE and ROA numbers I just read for USB are after that benefit. So, including that benefit, they're even better. Their interest margin rose by 10 basis points. Net interest income up by over 6%. They had a really predictably good year.

Douglass: Yes. That's the thing with USB. It's always -- well, at least for a while, it's been predictable and good. Let's talk about Wells a little bit. Obviously, there was the big legal charge, $3.25 billion. That's not exactly great headline news.

Frankel: No. That was actually just offset by the tax benefit they got. They actually came out a little bit ahead on that. But we talked about this in a recent episode, this was not a good year for Wells Fargo. And you can tell that by the atmosphere on the earnings call, reading the comments in the earnings release -- management wants to talk about what happens next, in 2018 and 2019. In 2017, Wells Fargo was the only big bank I've seen whose loan portfolio shrunk by a little over 1%. And when everyone else's loan portfolio was getting 6%-7% bigger, that's a big deal. For the full year, return on equity and return on assets looked good.

But Wells Fargo is more of a question of, can they get past the public perception affecting them right now? If you think they can, then it looks like a good buy right now. They're doing a great job of cost-cutting, I will say. They say they remain on track to cut $2 billion worth of ongoing costs by the end of 2018 and want to do another $2 billion in 2019. So they're trying to make their operation a little more efficient, it's just whether their revenue growth, loan growth, deposit growth will be in line with the rest of the industry, is the question.