Reality is beginning to settle in for three of the largest U.S. banks, as reflected in their second-quarter results. While some aspects in the earnings reports of JPMorgan Chase, Citigroup, and Wells Fargo offered reassurance to the banks and their investors, potential issues remain on the horizon.
As anticipated, all three banks, which reported earnings before the opening bell on Friday, experienced growth in both profits and revenues compared to the previous quarter and last year. These results met or exceeded Wall Street estimates.
However, their stock prices fell in morning trading on Friday. The key measure of net interest income (NII), which indicates how much banks earn from loans, was a focal point again this quarter as both Wells Fargo and JPMorgan reported disappointing results related to this metric.
Meanwhile, at Citigroup, lower expenses and higher-than-expected revenue and profits indicated that CEO Jane Fraser’s corporate reorganization might already be taking effect.
Here are some key takeaways from Friday’s earnings reports.
Jane Fraser’s Transformation of Citi
Citigroup’s second-quarter earnings provided a glimpse into the early outcomes of Fraser’s simplification plans, finalized in early 2024. The process included thousands of layoffs and additional expenses, which had previously concerned investors.
However, the bank’s operating expenses decreased 2% year-over-year during the three months ended June 30, due to savings from the simplification efforts. Expenses totaled $13.4 billion for the quarter.
“Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Fraser said in a statement, highlighting significant progress in both strategic and organizational simplification.
Citi reported revenue of $20.1 billion for the second quarter, up 4% from last year and in line with Wall Street estimates. The bank posted $3.2 billion in net income, or $1.52 per share, exceeding analysts’ expectations of $1.39 per share.
While the quarterly results reflected strength in Citi’s Services division, Warren Kornfeld, senior vice president at Moody’s Ratings Financial Institutions Group, noted that Citi still faces challenges in expanding market share and reducing expenses in other areas.
“The path to improved profitability still has a ways to go and will encounter both successes and setbacks,” Kornfeld said. “Importantly for bondholders, the bank continues to maintain or strengthen their capital and liquidity levels.”
Shares of Citi rose 2% in pre-market trading on Friday but dropped more than 3% in morning trading. Year-to-date, Citi’s stock has climbed over 20%.
Fraser mentioned in a call with analysts that Citi is addressing risk and compliance issues as part of its ongoing transformation. The bank was fined $136 million by federal regulators on Wednesday for insufficient progress in resolving data management problems.
“This is not the old Citi putting on band-aids; this is new Citi tackling problems head-on,” Fraser stated.
Wells Fargo’s NII Decline
Wells Fargo stock plunged over 7% on Friday morning after reporting a 9% drop in NII.
The San Francisco-based bank recorded $11.92 billion in NII for the second quarter, falling short of analysts’ expectations of $12.12 billion.
Both its revenue and earnings per share, however, exceeded Wall Street estimates. Revenue increased to $20.7 billion from $20.5 billion in the same quarter last year. Net income fell to $4.91 billion, or $1.33 per share, down from $4.94 billion a year earlier.
“Wells Fargo’s second quarter results highlight growth in fee revenue while underscoring continued headwinds for net interest income and operating expenses,” said Megan Fox, vice president and senior analyst at Moody’s Ratings Financial Institutions Group.
Wells Fargo expects NII to bottom out in the second half of 2024, once the Federal Reserve is anticipated to start cutting interest rates.
Mixed Feelings for JPMorgan’s Record Profits
JPMorgan’s second-quarter results were met with mixed reactions.
The bank’s stock fell 2% following its earnings report of $22.9 billion in NII, a 4% year-over-year increase, but below Wall Street estimates. The bank maintained its previous NII projections of around $91 billion, which disappointed investors hoping for an upward revision.
Despite strong NII, JPMorgan’s provisions for loan losses and expenses increased more than expected.
Nevertheless, JPMorgan reported strong inflows that exceeded analyst expectations. The bank achieved a record quarterly profit of $18.1 billion, or $6.12 per share, a 25% increase from $14.5 billion in the same period last year. Analysts had projected $17.3 billion in profit, or $5.88 per share.
JPMorgan also recorded $50.2 billion in revenue for the quarter, a 22% year-over-year increase, surpassing analysts’ expectations of $42.23 billion. This gain was driven by a 50% increase in investment banking fees and a $7.9 billion gain from new Visa shares.