Bank Earnings Just Gave the Market a Much Needed Confidence Boost | The Weekly Wrap

Summary

Steve Eisman says the latest bank earnings strengthen his view that large banks are not the key recession signal anymore; instead, AI and private credit may matter more for the macro outlook. He walks through benign non-accrual trends at JPMorgan and Bank of America, then notes that major banks posted strong EPS, revenue, and ROTCE largely thanks to trading and investment banking. Outside the banks, he frames IBM’s weak print as evidence that AI-related hardware demand is pulling client CAPEX toward servers, storage, and memory, while ASML benefits from the same AI buildout. He also breaks down Circle’s stablecoin model and why Visa and Mastercard’s participation matters more than Circle’s new bank charter, and he flags PayPal as increasingly vulnerable in a crowded payments landscape. Additional coverage includes Elevance, UnitedHealthcare, GE Aerospace, and Netflix, plus a brief mailbag on graphic novels.

Notes

• Eisman opens with a macro thesis: banks are no longer the main recession indicator; AI success or failure and private credit look more important.
• He argues the U.S. economy’s next inflection point may come from AI capex and credit stress, not from traditional bank-loan deterioration.
• Large-bank lending books still look clean, with JPMorgan and Bank of America showing only modest non-accrual trends.
• He defines non-accruing loans as loans 90+ days delinquent where banks stop recognizing interest income and reserve for losses.
• His main credit-cycle point: consumer and commercial non-accrual data are still benign and not showing GFC-like stress.
• The four large banks have broad consumer and commercial exposure, giving them a useful read on the credit cycle.
• JPMorgan reported EPS of $6.14, up 24%, with revenue up 15% and ROTCE of 23%.
• Bank of America posted EPS of $1.21, up 36%, with revenue up 15% and ROTCE of 16.5%.
• Wells Fargo beat on EPS at $2.00 versus $1.60, with ROTCE rising to 17.7% from a prior 14%-15% range.
• Citigroup reported EPS of $3.15 versus $2.12, with ROTCE at 13% versus 8% a year ago.
• Goldman Sachs posted EPS of $20.98 versus $10.91, up 92%, with ROTCE of 25.5%.
• Morgan Stanley delivered record revenue, up 27%, EPS up 62%, and ROTCE of 26.6%.
• He uses ROTCE as the key bank valuation metric: higher ROTCE should support higher price-to-tangible-book multiples.
• He links AI-related financing needs to stronger capital markets activity, especially in trading and investment banking.
• Circle’s business model is interest on short-term Treasury reserves backing USDC, minus BlackRock’s 18 bps fee.
• He says Circle’s new bank charter could let it run its own reserve vehicle and save the 18 basis points paid to BlackRock.
• He thinks the Visa/Mastercard consortium is strategically more important than Circle’s charter because distribution into payments is the hard part.
• The stablecoin story is therefore less about token creation and more about network access and payment-system penetration.
• He notes Circle went public at $31, later peaked near 270, and was trading around 63 at the time of the episode.
• PayPal may be for sale, which he reads as another sign that the payments sector is getting crowded and difficult.
• IBM’s preannouncement was a clear miss: EPS of $2.93 versus $2.80 last year and revenue of $17.2 billion versus $17.9 billion expected.
• IBM’s management blamed late-June client behavior: CAPEX shifted toward servers, storage, and memory to secure supply-constrained infrastructure ahead of price increases.
• He frames IBM’s miss as a short-term and long-term SaaS pressure signal from AI-driven hardware demand.
• The underlying mechanism is infrastructure allocation: buyers are prioritizing scarce compute and memory before expected price hikes.
• He contrasts IBM with Ericsson, which he says saw earnings fall 7%, revenue fall 6%, and guidance weaken because of component cost inflation.
• ASML is presented as an AI winner because it supplies lithography equipment and beat on EPS, revenue, and guidance.
• The AI buildout is creating a split: hardware and equipment suppliers benefit while software and some legacy IT vendors face capex crowd-out.
• Elevance posted EPS of $7.45, down 16% year over year but above estimates, while membership fell 1%.
• He says price increases are helping insurers, but membership losses can offset some of the margin benefit.
• UnitedHealthcare beat and raised guidance, with the story centered on pricing power and margin expansion.
• GE Aerospace reported EPS of $2.02 versus $1.66 last year and $1.86 expected, with revenue up 24% to $12.63 billion.
• GE Aerospace raised guidance to $765-$785, above its prior $710-$740 range.
• Netflix met expectations, but Eisman flags a reduction in the frequency of its engagement reporting.
• He treats engagement disclosure frequency as meaningful because it affects how investors track viewer activity over time.
• Netflix stock fell after hours despite decent results, showing investors were focused on disclosure changes and not just earnings.
• He says the big banks’ second-quarter strength came mainly from trading and investment banking, not just loan growth.
• The discussion repeatedly returns to pricing power: banks, insurers, and aerospace all benefited from strong pricing or mix.
• He emphasizes that recent bank earnings were better than feared, which can bolster market confidence even if the macro outlook remains uncertain.
• Morgan Stanley’s results were described as best-in-class on ROTCE, reinforcing his valuation framework.
• Goldman, JPMorgan, and Morgan Stanley are singled out as banks with ROTCE above 20% and premium tangible-book multiples.
• BofA’s quarter also featured better trading and investment banking, showing the same capital-markets tailwind across the mega-banks.
• The episode closes with a lighter mailbag segment about Eisman’s comic-book collection.