Chapter 1: What are the recent earnings results from major U.S. banks?
It's 2026 and banking is booming. This is Motley Fool Money. Tyler Crowe Welcome to Motley Fool Money. I'm Tyler Crowe. Today, I'm joined by longtime Fool contributors Matt Frankel and John Quast. It's that time again, folks, earnings season.
We'll discuss earnings today, this proposal from the Trump administration to cap credit card rates because we are talking about banks, and of course, what Thursday show would be complete without talking about stocks on our radar. But first, when I opened up Bloomberg this morning, and not my terminal, I'm not that fancy or have that kind of setup, Two related items caught my eye.
Two investment banks, Goldman Sachs and Morgan Stanley, reported earlier today, and they had stellar results in certain sections. Goldman mentioned its trading unit, and Morgan Stanley for its investment banking fees, mostly related to helping companies issue debt. One of the ones they mentioned was Meta Platforms for its massive AI data infrastructure build-out.
As we are talking right now, Goldman and Morgan Stanley are up 4%, 5% respectively. Look, this isn't the most detailed analysis of banks, but I think it's fair to say that within investment banking, they love volatility and vibes.
Volatility for their trading operations, like we saw with Goldman, and vibes to get companies to do things like issue debt, do mergers and acquisitions, IPOs, all the cool corporate activity that banks love to do.
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Chapter 2: How do investment banks respond to market volatility?
Clearly, investment banks are liking what happened last quarter. Now, Matt, you are, of the three of us, probably the most extensive bank coverer or observer of banks we have. What were some of the other themes you saw from banking earnings this past quarter?
Well, I'm definitely going to steal the volatility and vibes thing for an article. That's pretty awesome. But generally speaking, the bank earnings have been really solid so far. All of the big four, that's JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America, all of them beat expectations, both on the top and bottom lines.
Interest income has been a very strong point, which is to be expected as Fed rate cuts generally result in lower deposit costs for banks. For example, Bank of America's net interest margin grew by 11 basis points year over year. The bank expects 5% to 7% additional net interest income growth this year. Very strong. Equities trading was another strong point.
Like you mentioned, investment banking loves volatility. It's common in times of market turbulence. Bank of America and JPMorgan Chase, just to name another two examples, in addition to Goldman and Morgan, they saw equities trading revenue rise by 23% and 40%, respectively.
Chapter 3: What trends are emerging from the latest bank earnings reports?
Another interesting trend that I saw is, consumers appear to be stronger than many experts thought, or at least more confident, maybe not stronger. Deposit growth has been stronger than I thought. Loan growth has really been stronger than I thought. Bank of America's loan portfolio grew 8% year over year.
And most banks have reported lower than expected loan loss provisions, indicating that their loans are performing well. The big question, in my mind anyway, is, why did the big four bank stocks drop after earnings yesterday? As you said, Goldman and Morgan are lifting the sector today, but the initial reaction to all the big bank earnings was negative.
There wasn't much to dislike in their earnings reports, although some banks missed estimates on investment banking fees, some missed estimates on fixed income trading. But these stocks have been excellent performers over the past year. Just to name a couple, Wells Fargo is up 65% in 2025 alone. Goldman Sachs gained 50% last year.
So, a pullback on what I would call strong but not stellar earnings isn't that big of a surprise.
I want to broaden the lens a little bit here, because I think bank earnings is like holding up a mirror to Wall Street and the market writ large. I think it's a good way to focus on the vibes a little bit. John, I'll send this to you.
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Chapter 4: What is the proposed cap on credit card interest rates?
Things like large debt issuance, M&A activity, IPOs, things don't happen as much when everyone on Wall Street is miserable. So, seeing these earnings, a little bit of the vibe check. John, where does your mind go as an investor when looking at what these results say about market vibes?
Yeah, I think a lot about incentive structures at a time like this. I think everyone knows that I'm not like Matt Frankel, I'm digging into the big banks. That's not how I roll. But it does make me think big picture because of that. I'm not thinking about it down on the detail level. I'm zooming out.
And when investment banking is humming, the economy is strong, look, for good businesses, that's a good thing. There's nothing to complain about with that. But there are some incentive structures that push more things in this space, and so bad things can slip through. As one example, I'm a little bit suspicious of IPOs right now.
I think that there are good companies that can come public right now, but there are also some bad companies, perhaps, that are seeing a window of opportunity and saying, hey, let's go ahead and get through now while the getting is good.
Chapter 5: What are the potential consequences of capping credit card rates?
For example, a lot of special purpose acquisition companies have come public in recent months That's a blank check, not really a business there. Who knows what that's going to be? I think a company like Fermi, this is a data center play, but without data centers yet. It's looking way out into a decade into the future. Can it work out? Certainly can. But is it
a little bit more risky than perhaps we would see in other times. I think it is. I think that discretion is a very important quality for investors to have, particularly with IPOs when investment banking is strong. Similarly, I'm suspicious of merger and acquisition deals. Good companies can pull these off. I can think of several companies off the top of my head.
Good companies will pull these off.
Chapter 6: How might the credit card industry react to regulatory changes?
In a time like this, when investment banking is strong, hey, great, they can get better access to capital and make some deals happen. But Again, other companies with slowing growth can make some bad acquisitions and in the end destroy shareholder value. I think, once again, having that suspicious eye, having discretion as a shareholder is important.
One deal that I'm looking at under a microscope right now is Mobileye in its $900 million acquisition of Menti Robotics. Look, I get the big picture idea with vertical integration and robotics in this real-world application, perhaps a big trend over the next decade, humanoid robots. But is this a value creation deal? Is this the right deal right now for Mobileye? I'm not convinced yet.
I'm still thinking about it. So I think it's important for investors to similarly evaluate M&A deals right now.
Certainly appreciate the Charlie Munger, always invert approach here, where whether good vibes means more good vibes are on the way or good vibes are making those grasps at the next leg of growth in ways that we don't normally think of it that way. Well, a little bit on the vibe check thing, especially for banks, is that the Trump administration proposal to cap interest rates came out this week.
We'll take a look at the ripple effects of capped credit card rates after the break.
In January of 1915, Ernest Shackleton's ship, Endurance, became encased in the ice in the Weddell Sea.
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Chapter 7: Which companies could benefit from changes in the credit market?
Through determination, grit, and savvy, Shackleton would lead his men through a brutal winter, then over hundreds of miles of Antarctic ice, followed by 800 miles across some of the roughest waters in the world. It is one of the most extraordinary and inspirational journeys in the history of exploration.
Find this story and many others at the Explorers Podcast, available wherever you get your podcasts or at explorerspodcast.com.
Earlier this week, the Trump administration put out a statement about wanting to cap interest rates on credit cards at 10%. Now, there's a lot of paths we could take with this discussion, some of which we're not too keen to walk, because they'd likely turn an investing-themed podcast into a political one way too fast.
There's some obvious things we need to consider as an investor when thinking about something like how changes to credit card environment would change a lot of companies. First and foremost is, what are the chances of this happening? for us as investors? If so, what are the potential outcomes? For now, let's focus on the potential outcomes aspect.
I think that's a good discussion for us to have here. A little scenario, planning, game-playing, however you want to put it. Matt, if we put this into the scenario of it actually happening, how does this look on paper?
Yeah, I think everybody agrees that there's a credit card problem in the United States. It's definitely a problem that we have way too much credit card debt, we're paying too much in interest every year. I don't think a 10% credit card rate cap is practical, nor do I think it's the best solution to the problem. And it certainly is a problem.
The unintended consequence would be that credit card companies would essentially be forced to drop consumers that represent a relatively high credit risk, and not just the bottom customers. I'm talking about anyone without stellar credit. Think of it this way. If a bank is forced to cap credit card interest rates at 10%,
and their cost of deposits is 3% for savings accounts, that's a 7% gross margin. Consider that many credit card companies, like Capital One, for example, have a 6% to 7% charge-off rate. That would eliminate that profit entirely.
That's before you even factor in the cost of providing credit card rewards that everyone signs up for these things for, and the general cost of running the business, having branches, having offices, things like that. Credit cards would be completely unprofitable.
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Chapter 8: What stocks are on the radar for future investment?
To be honest, and I'm a little dubious of the practicality of this as well, we actually saw something relatively similar try to get implemented during the Biden administration back, I think, 2022, 2023. They tried to cap interest rates on payday lending using the Consumer Financial Protection Bureau.
But instead of delivering interest rate savings to the borrowers who are using payday lending or other small-sum, short-term, uncollateralized loan products, It just made payday lenders much more selective in terms of credit rating and the ability to get people payback because they wanted to lower their counterparty credit risk rather than benevolently give up interest rates.
I struggled to see a different outcome in credit cards than what we saw in payday lending, even though payday lending is a much, much smaller business than credit cards. That said, John, as you mentioned in our pre-show planning, there are some people that say, look, this can work, it will work, and it's not just consumer advocates.
One person who is very excited about this idea of capping credit card rates is Sebastian Simitowski. He's the founder and CEO of buy now, pay later company Klarna. Not exactly a neutral party. He does have incentive to see this. Listen, he's actually publicly advocating for a 0% cap on credit cards going even further. This would
in theory, benefit a company such as Klarna, which is why he's very excited about it. You look at Buy Now, Pay Later, it's 0% interest over 12 months. Some people are looking at this as, if we cap credit cards at 10% or 0%, that would push them more into competition with Buy Now, Pay Later. But as Matt points out, it's not that simple. You change the entire
financial structure of a credit card when you change the cap rates. It impacts the credit card points slash miles and what they're offering. They're going to drop certain customers because the profits just aren't there. In fact, Wells Fargo analyst Mike Mayo points out that at the current proposal, it would wipe out one year of credit card profits.
That completely upsets the apple cart in this industry for sure. in theory, push more people to a company like Klarna, which is why Sebastian Simakowski is so in favor of it and why I think that maybe we should watch companies in this space. As a reminder, Klarna is more than just buy now, pay later. It also has its fair financing service.
This allows for larger purchases, and it's more than four payment installments. This is a little bit more towards the credit card territory as far as what people are buying. So, yeah, maybe a proposal like this completely pushes people towards these companies like Klarna and more neobanks.
Yeah, certainly the buy-now-pay-later proliferation might make it, again, trying not to inject too much of my own thoughts into it, but again, I'm dubious, but having the proliferation of buy-now-pay-later might be able to help thread the needle with something like this here. John seems a little bit more on board with buy now, pay later as companies to watch should this happen.
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