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How Are the Big Banks Doing?

In this edition of Industry Focus, host Michael Douglass and Fool contributor Matt Frankel discuss bank earnings. With one big exception, the big banks are looking very strong. Revenue and earnings are up, margins are higher, and banks are running more efficient operations. However, there are some negative trends as well.

A full transcript follows the video.

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This video was recorded on Oct. 23, 2017.

Michael Douglass: Let's talk about big bank earnings. That's, for those who are keeping score at home, Morgan Stanley and Goldman Sachs, Wells Fargo and U.S. Bancorp, and Bank of America (NYSE: BAC), Citigroup, and JPMorgan. Generally speaking, most everyone did well, except for Wells Fargo, but we'll get into that. Let's start with some generalities, and then we can get into some specifics about each. One of the first things that really I saw was, trading revenue was a lot lower pretty much across the board.

Matt Frankel: Yeah, that tends to happen in low-volatility environments like this. The prices are moving around a lot less, so people tend to trade a lot less. That's kind of a negative thing, with volatility being at historic lows right now.

Douglass: Sure. I guess this is the drawback of stocks doing so well so far this year. On the flip side of that, a good thing for the banks, I noticed a lot of cost cuts. They're reducing branches. They're also cutting staff. And that's helping them better control their expenses.

Frankel: Definitely. In Bank of America's case, they closed 113 or 114 branches this past quarter alone. This is why you see revenues up across the board, but earnings are up even more, and the big reason for that is, costs are going down.

Douglass: Absolutely. On the flip side, one other issue. It's a slight concern. You're seeing some bumps in delinquencies and defaults, particularly credit card charge-offs. That's something we'll want to monitor going forward.

Frankel: Yeah. You're not anywhere near the danger zone just yet. But a lot of experts are saying that credit card debt is at a record high level, even from before the financial crisis, and this is something to keep an eye on, that people are maybe buying a little too much and we can see an uptick in defaults.

Matthew Frankel owns shares of Bank of America. Michael Douglass has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.