The winners from the fourth quarter are underdogs, banks that have for years been cleaning up messes and working toward once-elusive strategic goals.
Fourth-quarter earnings season for the bank majors is now in the books, but investors have been chewing through some themes brought to light by the week-that-was.
Among them: The end of financial crisis-related litigation is nowhere in sight. Rising yields-while bad for borrowers-have been kind to formerly eroding margins. And investors clamoring to get into the market are boosting assets under management across the board.
The comparisons end there.
The industry's underlying performance varied widely by company-an unusual detail, considering most of the universal banks operate along the same business lines with slightly varied footprints.
For one, Charlotte, N.C.-based Bank of America said that its fixed income revenue actually rose 16 percent, lifted by a flurry of client activity at the end of the year tied to the Fed's announcement it would start pulling back on bond buying.
At Bank of America, cost-cutting continued, but it saw something unique unlike its peers: Revenues across all its businesses were up. And its stock was up, too-rising 4 percent when the numbers hit. Only Morgan Stanley saw the same investor response, as its purchase of brokerage Smith Barney began to pay off.
The difference between the wheat and the chaff is interesting, if not surprising. Variation in businesses will happen; some clients will trade more than others-after all, a market takes all kinds. But the winners from the fourth quarter are underdogs, companies that have for years been cleaning up messes and working toward strategic goals and just this year achieved them.
For Bank of America, it was turning its focus to running its businesses, rather than dealing with legacy issues. For Morgan Stanley, it was operating as part-Wall Street, part-retail. It's high time those strategies start paying of-and they did.
By comparison, Goldman Sachs and JPMorgan-traditionally the standouts across the board-saw relatively spotty quarters.
Goldman beat estimates and saw net client assets grow, but profit sank 19 percent compared with a year earlier. Equity underwriting soared 105 percent compared with the prior year (the bank can thank its lead spot on the Twitter IPO), but its debt underwriting, advisory and trading units underperformed. Compensation fell to its second-lowest point since the firm went public.
Goldman CFO Harvey Schwartz said the uncertainty of the economic backdrop made executives reticent to undergo major transactions that have long been lucrative to the investment bank. "For a CEO making a decision on a merger, it's a career-defining decision," said Schwartz.
JPMorgan's messy report was highlighted by yet another legal settlement, this time an $850 million charge related to the bank's business with Ponzi schemer Bernie Madoff . On the bottom line, that charge-and two other settlements-was offset somewhat by a couple asset sales (Visa shares, downtown New York City real estate) and releases for money previously earmarked for bad loans. But the bank failed to grow revenue across nearly every segment.
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Wells Fargo's profit surpassed its rival JPMorgan in 2013 as it released more from its credit reserves, but the nation's biggest mortgage lender saw its core business sag as yields on mortgages rose. Growth in its brokerage and investment bank helped it diversify, but not enough.
Wall Street's biggest bet-Citigroup-became its biggest disappointment. Its numbers were a clear miss over analyst estimates, and the strength in emerging markets it once touted became its weaknesses. Revenues in Asia and Europe, Middle East and Africa were down-only Latin America saw top-line growth, but even that came with a higher delinquency rate for the bank's loans there.
Investors who bought the stock in October 2012 when Michael Corbat took the helm have notched considerable gains-but this time around, they were looking for more confirmation that the massive restructuring Corbat undertook a year ago was bearing fruit. Unfortunately, for those investors, the cuts did little to improve the bank's operating leverage, and Chief Financial Officer John Gerspach refused to guide analysts toward a benchmark for that metric when asked.
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"I feel like I'm at intermission now on the second box of popcorn waiting for your next act," said CLSA analyst Mike Mayo. "When do we get to see more about the restructuring?"
Cost-cutting couldn't lift the bank's securities and banking division, which saw weakness in fixed income that executives attributed to emerging markets sentiment and the Federal Reserve's laying a foundation to begin pulling back from bond buying.
- By CNBC's Kayla Tausche. Follow her on Twitter: @KaylaTausche