Earnings season officially kicked off last week with Alcoa Inc. (NYSE:AA). The earnings seasons for financials began with Wells Fargo & Company (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) on Friday, and Citigroup Inc. (NYSE:C) reported earnings today.When it comes to ‘financials,’ both in the vernacular and Wall Street talk, many terms are used, which are often confusing. Capital markets, financials, banks, insurance companies, financial advisory firms, trust banks, retail brokers, financial exchanges, and alternative asset managers commercial banks, investment banks, etc.
These terms are sometimes intertwined, or a big bank will have many divisions, so it causes some head scratching. With the help of Credit Suisse Group AG (NYSE:CS), we lay out all the terms in an extremely simple manner, both for the newbie and CEO at JPMorgan Chase & Co. (NYSE:JPM). Perhaps even Jamie Dimon could use a refresher after the London Whale loss. We Present ‘Capital Markets’ for dummies. Finally, for some of these companies, we list specific items to note.
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In general, investors should be looking at the commentary on current client risk appetite, state of backlogs, and levels of corporate strategic dialogue, leading to an improved revenue trajectory, in what is a traditionally weak time of the year and policy risks ahead, including the fiscal cliff.
Brokers & Financial Advisory Firms
Definition for the term, as per the SEC, people, or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business.
These consist of both big banks, like Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS), which have large financial adviser wings i.e. Morgan Stanley Smith Barney, as well as some more of the standalone firms, such as Greenhill & Co., Inc. (NYSE:GHL) and Lazard Ltd (NYSE:LAZ). When looking at a report or an article, if you see these words for banks like Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS), you will have the definition handy, courtesy of ValueWalk.
However, these big banks do much more. For Greenhill & Co., Inc. (NYSE:GHL), analysts will be looking for affirmation of the second half revenue guidance, given recent and potential future deal announcements. Lazard Ltd (NYSE:LAZ) should provide more details on 25% operating margin target.
Retail Discount Brokerage Firms
Your on-line brokerage firm, where you trade your stocks, bonds, ETFs, and possibly esoteric instruments (although that is mostly for the big boys). Some of these firms are publicly traded, others are private, such as Vanguard and Fidelity.
Names of the big public discount brokerage firms include; Charles Schwab Corp (NYSE:SCHW), which just reported earnings today, TD Ameritrade Holding Corp. (NYSE:AMTD), Etrade Financial Corporation (NASDAQ:ETFC).
Trust and Custodial Banks
A custodian bank, or simply custodian, is a specialized financial institution responsible for safeguarding a firm’s, or individual’s financial assets and is not necessarily engaged in “traditional” commercial or consumer/retail banking, such as mortgage or personal lending, branch banking, personal accounts, ATM sand so forth, as Per Wikipedia.
Trust and Custodial bank manage financial assets. Readers might notice that when they login to view their mutual funds’ performance, that many times investors are redirected to another site. This is likely to provide protection for investor assets.
Some of the big publicly traded custodians Charles Schwab Corp (NYSE:SCHW), The Bank of New York Mellon Corporation (NYSE, Northern Trust. Like the big banks there is overlap. i.e. as mentioned above Schwab is also a discount brokerage.
Alternative Asset Management Firms
Alternative Asset management firms are just a complicated way of stating that these firms invest in products such as Private Equity, hedge funds, distressed debt and Real Estate. Some of the firms below are more weighted in certain categories. Basically, they take money from rich individuals and try to provide high returns.
Names include Carlyle Group LP (NASDAQ:CG), Apollo Group Inc (NASDAQ:APOL), The Blackstone Group L.P. (NYSE:BX), BlackRock, Inc. (NYSE:BLK), Oaktree Capital Group LLC (NYSE:OAK) (PINK:OKCMZ), and KKR & Co. L.P. (NYSE:KKR). The key for these firms is to look out for fund flows. Are investors pulling out money or investing? The more funds the company has, the better.
The biggest banks in America are; Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group, Inc. (NYSE:GS), and Morgan Stanley (NYSE:MS). These banks are so large it is hard to quantify. There will be significant overlap. For example, Goldman Sachs Asset management division dwarfs any of the Alternatives besides BlackRock, Inc. (NYSE:BLK). These banks lend, manage money, speculate, and do 100 other things. Some of these companies have already reported earnings. For the ones which have not, Look for NIM and spread income outlook in the context of the Fed’s continued “lower for longer” stance and acceleration in prepayment speeds.