Musings On Banks & Narrative Shifts

Key thoughts for investors heading into Q3 earnings

Bank Friends,

Stream of consciousness/rant incoming on banks and what I’m focused on.

Front of mind is China. And not because I love Chinese banks, but because it highlights the most powerful piece of investing. Narrative.

China is up 20% in a handful of days on what? Fundamentals? Earnings growth? Xi becoming less communistic? Nope. All on the narrative of QE, cutting rates, and massive (well maybe not too massive) liquidity injections.

Source: Bloomberg

Narrative shifts can be powerful. Both to the upside & the downside.

And this should make sense to bank investors since 2023 was a year where “the narrative” was once of liquidity outflows, bank runs, and terrible returns.

2024 was a year where the narrative for some shifted to cautious growth and the prospect of increased earnings going forward. NIM compression slowed to a trickle and may be increasing going forward. And credit has behaved for the most part.

And for Q3 and beyond into 2025, what is the narrative?