Reality is setting in for three of the largest U.S. banks, based on their second-quarter results. While some aspects of the earnings reports from JPMorgan Chase, Citigroup, and Wells Fargo offered reassurance to both the banks and their investors, potential challenges remain on the horizon.
As expected, all three banks experienced growth in profits and revenues compared to both the last quarter and the previous year. These results mostly met or surpassed Wall Street estimates. However, their stock prices fell in morning trading on Friday. Net interest income (NII), a key indicator of how much banks earn from loans, was a focal point as both Wells Fargo and JPMorgan reported less favorable results in this area.
Meanwhile, at Citigroup, lower expenses and higher-than-expected revenue and profits indicated that CEO Jane Fraser’s corporate overhaul might be taking effect. These are some of the key insights from Friday’s earnings reports.
**The Impact of Jane Fraser’s Transformation at Citi**
Citigroup’s second-quarter earnings provided a look at the early effects of Fraser’s efforts to simplify the bank’s operations, completed in early 2024. This overhaul led to thousands of layoffs and billions in additional costs, which had concerned investors in recent quarters. However, operating expenses decreased by 2% year-over-year for the three months ending June 30, thanks to savings from these simplification efforts. Expenses totaled $13.4 billion for the quarter.
Fraser stated, “Our results show the progress we are making in executing our strategy and the benefit of our diversified business model.” Citi’s revenue was $20.1 billion for the second quarter, a 4% rise from the previous year, and matching Wall Street estimates. The bank reported a net income of $3.2 billion, or $1.52 per share, surpassing analysts’ expectations of $1.39 per share.
Despite these positive results, Warren Kornfeld, senior VP at Moody’s Ratings Financial Institutions Group, noted that Citi still faces challenges in growing its market share and reducing expenses in other areas. Citi’s stock, which had increased by more than 20% this year, rose 2% in pre-market trading but fell over 3% during the morning session. Fraser emphasized that Citi continues to address risk and compliance issues, despite $136 million in fines from federal regulators for “insufficient progress” on fixing data management problems.
**Wells Fargo’s NII Decline**
Wells Fargo’s stock dropped over 7% on Friday morning after reporting a 9% decline in NII. The bank earned $11.92 billion in NII during the second quarter, falling short of the $12.12 billion expected by analysts. However, both revenue and earnings per share exceeded Wall Street estimates. Revenue rose to $20.7 billion, while net income slightly decreased to $4.91 billion, or $1.33 per share.
Megan Fox, VP and senior analyst at Moody’s, highlighted growth in Wells Fargo’s fee revenue but pointed out ongoing challenges for NII and operating expenses. The bank anticipates NII to bottom out in the second half of 2024, once the Federal Reserve begins to cut interest rates.
**JPMorgan’s Mixed Results**
JPMorgan’s second-quarter results drew mixed reactions in the market, with its stock falling 2% after reporting $22.9 billion in NII, a 4% year-over-year increase but below Wall Street’s estimates. The bank maintained its previous NII forecasts of around $91 billion, disappointing investors who hoped for an increase this quarter.
Despite this, JPMorgan reported strong inflows that exceeded analyst estimates, achieving a record quarterly profit of $18.1 billion, or $6.12 per share, a 25% increase from last year. Analysts had projected $17.3 billion in profit, or $5.88 earnings per share. Revenue for the quarter was $50.2 billion, a 22% year-over-year increase, driven by a 50% rise in investment banking fees and a $7.9 billion gain from new Visa shares.