Motley Fool Money - Bank Earnings Have Entered the Upside Down

Episode Date: October 13, 2026

Bad results, stock up. Good results, stock down? This most recent round of big bank earnings has investors scratching their heads. We saw some expected things (Jamie Dimon had words of caution), and some unexpected surprises (credit card use way up). Matt, Lou, and Tyler break down the most important numbers from this round of banking earnings. Plus, automation and robotics investing is harder than it looks plus a mailbag question about Empire State Realty Trust Have a question? Email us; [e-mail] Tyler Crowe, Lou Whiteman, and Matt Frankel discuss: - The important numbers from big bank earnings bonanza- Was Jamie Dimon “normal” cautious or “extra” cautious?- Automating warehouses is harder than it sounds- Investing opportunities in robotics and automation-Mailbag: Is $ESRT a buy, sell, or hold?Companies discussed: JPM, WFC, C, GS, WMT, SYM, ABBNY, AMZN, HON, ZBRA, GXO, ESRT Host: Tyler CroweGuests: Lou Whiteman, Matt FrankelEngineer: Bart Shannon Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, "TMF") do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit megaphone.fm/adchoices

It's Bizarro Bank Earnings Day. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crow. And today I'm joined by longtime full contributors, Matt Frankel and Lou Whiteman. Guys, we're going to get into the challenge, I guess if it will, of investing in the robotic space and automation. We're going to hit them email. But we're going to start today because it's bank earnings weeks.

And we had three of the biggest banks already kick us off. We had JP Morgan. We had Goldman Sachs. Wells Fargo and Citibank all report earnings today. And guys, it was kind of like that episode of Seinfeld where they had Bizarro Jerry and the crew here because whatever was up, it was down. J.P. Morgan actually missed estimates, but its stock was up while everyone else beat earnings and saw their stocks go down. This is, of course, as we're recording by the time this show drops, perhaps that's changed a little bit, but it did show a little bit of the reaction of what we saw

today. Obviously, anything that happens in any given moment, we're not going to look into it too much. So looking across the whole space, I'm going to start with you, Lou. What is like the one number from these big bank earnings that you saw so far that all investors should know about? 557. And I know there's more important numbers and we can get into more of it, but that is the single most important number. That's J.P. Morgan's reported earnings for share. It is, as you say, a miss. Wall Street was expecting 590. This is significant to me because J.P. Morgan

is the bellwether. Jamie Diamond is the Oracle of Wall Street. When they miss, it deserves attention. Look, I think the drivers are interesting, too. Securities, losses, slower investment banking. What we're seeing, the story of this quarter, and we can get

deeper into it is, is that banks with heavy trading models did well. The more diversified or rates sensitive franchises, I don't want to say did poorly, but they're showing signs of strain. And I think that is my big takeaway based on that one number and everything else we got. I want to go in a slightly different direction just for a second, though, because we just came back from Fulfest, our annual live membership to get together.

And our colleague, Emily Flippen, kind of put out a rather stark number. I think it was something like 85% of companies in the prior quarter and second quarter beat earnings estimates. So is this baby Wall Street up the 80s? ante a little bit here where it was like, you know, we can't have everybody beating that much. And so some of them might actually miss this quarter. Maybe, maybe some. But look, I mean, again, JPMorgan is not a kind of their company tries to communicate pretty well. You take away the net security's losses and earnings per share was still below the estimate. Look, it's just, it's not as easy as it was previously. That's the takeaway. So, Matt, same to you. If you, I obviously,

a whole bunch of other companies we can go into direction here. The one number you think matters the most. One of the biggest reasons I like following bank earnings, it's not necessarily just for the banks themselves. It's because you can get a lot of read on the health of the consumer. It can have implications for literally every other sector of the market as we go through earnings season. One number that really stood out to me is card spending. Credit card spending at these major banks was up 10 to 13%. Even after adjusting for inflation, you're looking at 6 to 9 percent, you know, real increase in spending, consumers aren't pulling back despite the kind of uncertain economy. Consumer credit quality was strong. Net charge off rates were lower pretty much across the board.

And all the bank CEOs said that consumer is healthy. They didn't say the same for business loans. That's where most of the reserve builds were. And there were a few yellow flags throughout the industry. But generally speaking, consumers appear healthier and more than I would have thought. The consumer is fascinating right now because, yeah, you're right, Matt, that it looks fine. But then again, you hear all these stories about the what is going on the credit card bills or what is going into credit right now, things like utility bills, things like that. So I don't know how I read this through. The good news is that they're paying their bills. And that is what we need.

All we need is a critical mass able to continue with business as usual. But I worry that the card numbers from an individual company don't. adequately speak to the strain that the consumer collectively is under right now. So that's still sort of a wait and see for me. Yeah, I mean, there is a caveat there. The big banks tend to skew toward more affluent consumers. And you've heard a lot of talk in the media about having a K-shaped economy where, you know, the people at the top are doing better than,

and while the people at the bottom might be getting left behind. And, you know, like I said, the big four banks, generally their core customer base are the affluent customers. So you're right. It doesn't give us a full read on, you know, and just because people are spending a lot doesn't mean they're healthy. I know a lot of people who increase their credit card spending who shouldn't be. But yeah, you're right that there's, it's not like a total read on the U.S. consumer, but it still surprised me that the spending increased quite so much. We'd be remiss. You said yellow flags and just kind of, you know, we don't want to hand wave that too too much. Obviously, Jamie Diamond is known for being, I wouldn't say, completely pessimistic on a lot of these calls, but he tends to be a little bit more cautious than I would say most companies in general. But then again, he's a banker. We kind of want our bankers to be a little bit more on the cautious side. Was the commentary that you saw from like Jamie Diamond or maybe somebody else in the most recent quarter, slightly more bearish than normal?

Or was it just kind of par for the course? Hey, let's look out here. There's some stuff going on. Well, like you said, Jamie Diamond has given bearish commentary many times in recent years, and he gave a whole list of worries with this earnings report. He named large deficits, sticky inflation, elevated asset prices, rising interest rates, geopolitics, all his concerns. He called them manageable, but he said he's preparing for, quote, a wide range of outcomes. But it's not just what he said. Like you said, he's been bearish before.

J.P. Morgan deliberately cut back its pace of share repurchases this quarter. They use that word deliberately, not just like, not like the Fed made them cut back repurchases or they didn't have the money. That kind of indicates that what they might feel like the stock's a little expensive compared to the opportunities in the medium term. Yeah, I maybe or is that a signal that you want to keep your cash for a rainy day? It's just so hard to say. But yeah, Damon is always glass half empty.

I think he sees that as his job. Charlie Sheriff over at Wells Fargo. probably tried to be the most reassuring, but also said that underwriting criteria assumes consumer credit will weaken at some point. So there's sort of even there where there's optimism, there's kind of a feeling of an inevitability right now. If one thing we've learned from kind of JP Morgan and Jamie Diamond over the time is sometimes I like to keep a little bit extra cushion because eventually something's going to go wrong and somebody's going to have to get bought for various reasons.

And J.P. Morgan always seems to be the bank of last resort when the FDIC needs somebody to get bought. So, I mean, I'm being a little flippant here when I say that. But it is something worth following up in the next couple of quarters. It's hard to take it any sort of like signal from one quarter of being like, let's be cautious. Because again, that's kind of how these things always sort of shake out. Coming up after the break, we're going to get into the complexities and the challenges, a lot of companies implementing robotics and automation are facing. We've always wanted to have some sort of conversation around robotics and automation,

because from our listener mailbags and a lot of comments that we get, it tends to be a subject people want to learn the most about. And obviously with AI kind of this rolling snowball, if you will, that with more AI, better adoption of robotics, and we get this nice snowball effect here. But we really got a chance here because over the weekend, the Wall Street Journal did a great piece on Walmart and some of the challenges that it is having implementing automation

for the various reasons, the complexities of trying to go from lifting a box full of diapers versus lifting a box that has a 70-inch TV in it and the weight differences and all those challenges that they're having. It's a fascinating read. anybody who is interested in robotics and kind of the nuts and bolts of how it work, I think should go check it out. But guys, one of the first things that stood out to me, and I'd like to get your thoughts on this as well, was they mentioned how, you know, these are old facilities and how Amazon seems to be kind of beating a lot of these companies when it comes to automation

because they're investing heavier. They have newer facilities. They can kind of do a little bit more. My question is, is Amazon that much further ahead of the legacy retailers? Or do we, just not have as much visibility into what they're doing. I don't know, not having high profile Wall Street Journal articles written about their automation lately. Yes is the answer I think. Amazon is definitely ahead. As you say, they kind of got to start from scratch and they are continued to build. So I think that helps. But look, they bought Kiva Systems back in 2012. That was their entry into robotics, which is well ahead of what most people are doing. The question is, too, doesn't matter long term because even if you're ahead, if everyone can get there, it's a short-term advantage and not a

moat, dare I say. But yeah, I do think the signs indicate that Amazon is ahead, but yet we also haven't had a Wall Street Journal's story really, really look in at all of the little, I don't know, toe stubs they have as well. Yeah, Matt, do you agree with that? Yeah, I mean, I honestly didn't need a Wall Street Journal story to tell me that Amazon had an edge in when it comes to automation. Not only did they buy Kiva early, like Lou said, they design many of their buildings specifically around automation, whereas as you said, Walmart's trying to retrofit, you know, old buildings from the 80s and 90s

that also have to keep running while they're under construction. I mean, but for visibility, you're right. I mean, Amazon boasts are not its milestones, but it rarely will talk about its failures publicly. That's where you, you know, see that a second or third hand. Yeah, and one of the, part of the, discussion that I found so interesting too on the complexities of it is we think of automation and robots as being able to handle everything. And one of the big stories coming out of this was like a fully automated facility is something like 80% automated because getting that last 20% is so complex that it's just like it's easier to use humans because of the one-off nature of these sort of things. And it's just harder to train. Because of that, because of the very many unique tasks and things that we are doing in the automation space. There's been talk of humanoid robots

doing a lot of this versus kind of this automation arms, things like ABB makes the things that we see on like assembly lines that have been common in e-commerce warehouses as well. My question is, as we're kind of watching this industry shape up over time, will robotics have that one winner to rule them all like we've seen in Silicon Valley, you know, alphabet dominates search and YouTube, whereas meta dominates social media. Is that going to be the same thing here because they have the most data, the most capabilities, or do the unique needs, the kind of like the bespoke nature of this, you know, make, mean we can see a lot of good investments in this potentially.

I think we'll see a lot of good investments. Because like you said, you hit the nail on the head right there. It's not a winner take all category. These companies have very different, really goals. I mean, look, they're all trying to just automate and organize, but so many different kinds of products, so many different, like just kind of, you know, it's a B2B, B2C packaging requirements. Is it just distributions, get things on trucking, get them out to a store, get them out to consumers? There is just so many, it's rare to find two companies that have identical supply chains throughout an identical fulfillment.

So it's hard to build a prepacket solution. I think you're already seeing it. I think some of the best investments are going to be just those who can contribute, whether it's Zebra or Honeywell with what some of the stuff they're doing or symbiotic doing kind of, you know, warehouse automation, you know, as a service, all the way up to like a GXO, which is kind of going to do it for you because that's another variable here. Some companies want to control their warehouses. Some companies, quite frankly, don't. So I do think there's a ton of opportunities. It might take longer than we hope because of

complexity, but I do think there is just a lot of work being done here, and there will be a lot of winners. And to that point of the many different ways that it's getting deployed and the, you know, expenditures that a lot of these companies are going at, Matt, one of the things I was thinking about as I was reading this too is we're spending a lot on things like AI infrastructure right now. The amount of money that's going out the door is pretty spectacular. I'm curious, do you think that AI infrastructure spending could be delaying the deployment of this automation and robotic spending

just because there's only so much capital to be deployed in certain ways? Certainly Amazon is, for example, is spending a lot on CAPEX for AI infrastructure. Automation may not be as much of a priority right now. It seems pretty clear like a major robotics push is going to take similar levels of capital spending to what we've seen with AI, right?

Yeah, I mean, for tech, It's like Amazon. AI is the clear priority. Amazon's CAPX guidance for this year is about $200 billion. But I mean, another way to think of that is even if most of that is spent on AI infrastructure, that could still leave billions of dollars to invest in automation this year alone. You know, for retailers, the automation is the priority. For me, like the bigger concern here is really the power angle. One of the things in the Wall Street Journal article you mentioned is that when Walmart automates one of its warehouses, its electric bills more than triple compared

to what they were before they were automated. The data center infrastructure and warehouse automation, they both pull from the same energy grid. So that could be the biggest delaying factor, in my opinion, not just the CAPEX because the retailers who really need this to work, this is going to be their CAPEX priority. It's a question of power infrastructure for lot of them. Yeah, one of the small like side notes on that that was so interesting was like

the temperature range for a symbolic automated facility was had to be much more like temper control than like human run places. It was almost like one of those, well, I guess HVAC companies win again. You know, the picks and shovels always seem to be a great place to go. But on that and we just as we're kind of wrapping up here, as you guys are thinking about investors going into the space robotics, automation. There's a lot of ways they can go. There's the pure place like Symbolic. There's some of the industrial giants like we mentioned, ABB, Honeywell, all these companies. What to you guys is the biggest takeaway for investors that are interested in the space? And as a follow on, go ahead and throw out what you think is one of the best companies in this industry.

So just to back up one step, what we're really talking about here is that the warehouse automation has been going on for decades. But what we're doing is moving from those single use arms, like you say, we're just basically you programmed it and you ripped it out when you were done with it to multi-use. That is the opportunity now with AI, just kind of smart systems that can be reprogrammed and do multiple tasks and therefore do more tasks. And that is the opportunity. It's going to take a lot longer than it looks on the PowerPoint. And I think that's what the Walmart article tells us. It is just it is hard to retrofit in real time.

But there is the opportunity there. You mentioned it. Symbolic is, I think, a very, very. intriguing company in all this. It still looks overvalued versus today's business, but there's so much potential in that business. That's one I'd look at. I also, I love GXO as kind of a different way to go about this. But again, I think this is going to be maybe as big as AI, or kind of approaching that in terms of just the breadth of companies, even if not the pure revenue numbers. Yeah. I mean, I think there's, there are going to be years of heavy

spending and some setbacks along the way before we get a big payoff from automating warehouses. I bet on the companies that can comfortably afford to get through this period. Walmart actually might be one of my favorite ways to invest in the automation trend if I had the name of stock. I mean, Lou mentioned symbiotic. That's an obvious play. But yeah, some of the retailers that have the strongest balance sheets are in the best position to win here. Well, it probably is worth mentioning that Walmart does have a pretty considerable stake in some symbiotics, so nice little kind of synergies with that one. Coming up after the break, Matt, you've got a question specifically for you in the mailback.

Hey, everyone, just a quick reminder, if you want to get your email read on air, go ahead and email us at Podcasts at Fool.com. That's Podcasts with an S. I've also put the email in the show description, so you can grab it there as well. Today's email comes from Matt Hawley. And this one is specifically for Matt Frankel. He says, you have owned Empire State Realty Trust, the tickers ESRT, as I have. It would be an understatement to say that performance has been terrible. What has been the main cause of the poor results and would you rate it a buy, hold, or sell at its current price?

So let's start with just the first half of it. It's been bad. Why has it been bad? Yeah, well, first of all, this is the real estate investment trust that owns the Empire State building in a portfolio of mostly office. properties in New York City. They have a few residential properties, mostly offices. And the short answer is that the key differentiator of this compared to other office reeds is the observatory on top of the Empire State Building. They don't lease that out. They own that and they make money from it.

General decline in international tourism has hit the observatory hard. There's also increased competition. There's a few new observatories, you know, in high buildings that have opened in the past couple years. So observatory revenue was down almost 30% in the last quarter, and net operating income was cut almost at half. This is their big profit center. This is the highest margin part of their business. So the ironic part is the office business is fine. When I bought, my thesis was the opposite. My thesis was that the office market could remain weak because of hybrid and remote work, but that the observatory, which they just invested a lot of money in, would provide high margin cash flow and give it an advantage over other office rates. So the office portfolio is almost 95%

leased. That's up from about 93% a year ago. The company is they've achieved higher lease rates on new leases for 20 quarters in a row. And of course, there's the interest rate factor. If you look at pretty much any rate, they've been an underperformer lately. Well, that's kind of been, that's been pretty par for the course for much of the industry between interest rates and, you know, kind of those struggles with debt and all that stuff. So I do want to put the, the rubber to the road here because we want to go buy, sell, or hold. And Lou, you can give your, uh, your, your thoughts as well here. Uh, giving like this last minute sort of thing and make, we can keep it really short, uh, buy sell or hold empire state realty trust at today's prices.

Yeah, I'm holding. We're not given personal advice, but I'm holding at least for now. The stock trades for six times funds from operations, which is real estate version of earnings. Even after adjusting for the, the observatory expectations, it's still very profitable. no debt maturity until 2028. It's a cyclical problem that comes with international tourism. There are some yellow flags, high debt ratio, debt to EBITDA 6.6. That's a pretty high ratio for a REIT. And management has specifically said it as a limited visibility into future observatory revenue.

So I'll be watching that as we go forward, but I'm holding for right now. I'll be honest. It's hard for me to find this compelling. If it stocks down 50% in the last year, if this is how the stock reacts when, in Matt's words, the core office business is fine. It's tough for me to see this as a long-term consistent market beater. Dividy yield under three. You need a lot of growth. I'll pass. It's going to be a challenging market for anybody in the real estate space, especially with the rising interest rates. But hey, some of them will work. Some of them might not. That's all the time

we have for today. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. Don't buy or sell stocks base silly on what you hear. All personal finance content follows Montletful editorial standards, and is not approved by advertise. Advertisement's or sponsor content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks for our producer Bart Shannon and the rest of the Montleful team. For Matt, Lou and myself, thanks for listening and we'll chat again soon.