Finimize - 🍾 Bankers are celebrating

What’s going on here?

Three US banking giants – JPMorgan, Citi, and Wells Fargo – surprised everyone with some unexpectedly sweet results on Friday.

What does this mean?

Whatever issues big banks are facing right now, it looks like they’ve found a silver lining: higher interest rates. See, JPMorgan, Citi, and Wells Fargo’s results were all cushioned by high rates, with net interest income – the difference between what they charge on loans and pay out on deposits – climbing 44%, 16%, and 29% respectively from the same time last year. And sure, investment banking and trading had a bit of a snooze for JP and Citi, but JP still managed to impress on the whole, and Wells saw a healthy uptick in its consumer and small business banking segment. So while Citi posted an overall dropoff in takings, the bottom line was that all three still beat revenue and profit expectations last quarter.

Why should I care?

The bigger picture: Credit crunch.

The state of the US consumer is a big worry for the banking sector – and with further interest rate hikes looming, even more loans could end up going sour. Banks are already prepping for that, stashing away more cash for potential credit losses. And there’s plenty of room for bad loans to snowball: US debt is ballooning, so if and when consumers hit a wall and can’t pay that back, then banks – and the whole US economy – could take a serious hit.

Zooming out: BlackRock’s gold star.

It was a full house for the financial sector on Friday, with BlackRock joining the expectation-beating club. The world’s largest investment manager closed the quarter with $9.4 trillion in assets under management – a surge that came as investors, buoyed by a more bullish market, funneled cash into its funds. The result: BlackRock breezed past profit expectations, with earnings growing by about a quarter compared to the same period last year.

What’s going on here?

Burberry, the British luxury giant, delivered some good news last Friday – and it’s not an update to their beloved tartan.

What does this mean?

Now that spending on high-end goods has taken a tumble, parts of the US luxury market are looking more “bargain bin” than “top shelf”. And Burberry felt that pinch last quarter, with sales in the Americas dropping by 8%. But just when all seemed lost, China – Burberry’s knight in a stylish trench coat – came to the rescue. See, despite economic headwinds, sales in the country swelled by 46%. The reason: China isn’t in lockdown anymore, and consumers are flocking to stock up on Burberry’s iconic rainwear and leather goods. Add in a solid performance in the rest of Asia, and the firm’s total same-store sales rose at the fastest clip in two years.

Why should I care?

The bigger picture: Focus on the 0.1%.

The US and China are the titans of the luxury market – so when either one stumbles, it’s pretty bad news for the sector as a whole. Still, though, it’s the lower end of the US luxury market that’s really feeling the heat, while the ultra-wealthy continue to splash out. And that’s got Burberry scheming: the firm’s now trying to push into the top end of the luxury market, and it’s pulling out all the stops to revamp its image. By year’s end, it’ll have upgraded over half of its stores – and its fresh new collections, focusing on its British roots, also aim to elevate the brand.

For markets: Stock still.

Burberry’s making the right moves. Even within the luxury space, there’s a hierarchy – and analysts have split firms into the outperformers, like LVMH and Hermès, and the rest, who are expected to lag behind. Their stock prices show the difference: while LVMH and Hermès stocks are up 28% and 35% respectively this year, Burberry’s is up just 2%.