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Big Banks Start The Year With a Bang

1 February 2013 in Trading Ideas

The recent quarterly results from two of the country’s biggest financial institutions — JPMorgan Chase and Goldman Sachs -– appeared to surprise and delight investors.

Both companies reported profits that were above Wall Street expectations. In the case of Goldman, earnings per share came in more than 48% above expectations.

The two banks each gave different reasons for their strong results. Morgan Stanley credited a strong investment banking business, along with a drop in payroll costs — the bank cut 5,000 employees during 2012. Goldman’s earnings boost was credited in large part to stellar performance by its proprietary trading desk, whose percentage contributions to the company’s total profit jumped by 53% from the previous quarter. Non-payroll related cost controls also aided the bottom line.

Many banks are following Morgan Stanley and Goldman Sachs in reducing head count and controlling costs. The Too Big To Fail motif tracks 19 financial conglomerates and banks that collectively control 72% of the U.S. banking industry as of 2011. Morgan Stanley and Goldman Sachs make up a quarter of the weighting of the motif, which is up 30.2% over the past year.

Performance data was as of 01/31/2013. Performance data and returns are based on past performance and are not representative of results an investor could expect to achieve. Returns of individual motifs do not take into consideration certain fees and/or commissions, corporate actions, or other activity that can affect the return an investor could expect to incur. For detailed information on how we calculate returns, please visit www.motifinvesting.com.

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