Reality is beginning to settle 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 provided reassurance for the banks and their investors, potential challenges remain visible on the horizon.
As expected, all three banks, which reported earnings before the market opened on Friday, experienced growth in both profits and revenues compared to the previous quarter and the same period last year. These results were generally in line with or exceeded Wall Street estimates.
However, their stock prices fell during morning trading on Friday. Net interest income (NII), a key metric of how much banks earn from loans, was a focal point this quarter as both Wells Fargo and JPMorgan disclosed disappointing results in this area.
Meanwhile, Citigroup reported lower expenses and better-than-expected revenue and profits, indicating that CEO Jane Fraser’s corporate overhaul might be showing positive early results.
Here are some key takeaways from Friday’s earnings reports:
Jane Fraser’s Citi Transformation
Citigroup’s second-quarter earnings provided insights into the early outcomes of Fraser’s simplification efforts completed in early 2024. The process involved significant layoffs and substantial additional expenses, causing concern among investors in recent quarters.
During the three months ending June 30, Citigroup’s operating expenses fell 2% year-over-year, totaling $13.4 billion, thanks to savings from the simplification efforts. “Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Fraser noted, pointing to notable progress in both strategic and organizational simplification.
Citigroup’s revenue for the second quarter was $20.1 billion, an increase of 4% from last year, meeting Wall Street estimates. The bank reported net income of $3.2 billion, or $1.52 per share, surpassing analysts’ expectations of $1.39 per share.
Despite strong performance in Citigroup’s Services division, challenges remain in growing market share and reducing expenses in other business areas. “The transformation and path to improved profitability still have some distance to go and will encounter both successes and setbacks,” said Warren Kornfeld, senior vice president at Moody’s Ratings Financial Institutions Group. Shares of Citigroup initially rose 2% in pre-market trading but fell over 3% in morning trading. Year-to-date, Citigroup’s stock has increased by over 20%.
Fraser assured analysts that the bank continues to address risk and compliance issues as part of its ongoing transformation. Recently, Citigroup faced $136 million in fines from federal regulators for “insufficient progress” in resolving data management problems. “This is not the old Citi putting on band-aids; this is the new Citi tackling problems head-on,” Fraser emphasized.
Wells Fargo’s NII Decline
Wells Fargo’s stock dropped over 7% on Friday morning after reporting a 9% decrease in NII. The bank recorded $11.92 billion in NII for the second quarter, falling short of analysts’ expected $12.12 billion.
Despite this, Wells Fargo’s revenue and earnings per share exceeded Wall Street estimates, with revenue rising to $20.7 billion from $20.5 billion a year ago. Net income was $4.91 billion, or $1.33 per share, slightly down from the previous year’s $4.94 billion.
“Wells Fargo’s second-quarter results highlight growth in fee revenue while underscoring ongoing challenges for net interest income and operating expenses,” said Megan Fox, vice president and senior analyst at Moody’s Ratings Financial Institutions Group. The bank expects NII to bottom out in the second half of 2024 when the Federal Reserve is anticipated to start reducing interest rates.
Record Profits and Some Disappointments at JPMorgan
JPMorgan’s second-quarter results elicited mixed reactions in the market. Its stock fell 2% after reporting $22.9 billion in NII, a 4% yearly increase but below Wall Street estimates. The bank maintained the guidance it set at its annual Investor Day, with NII projections remaining around $91 billion.
JPMorgan’s NII contributed significantly to its record 2023. However, it is anticipated to decrease, or “normalize,” this year based on expected rate cuts by the central bank. “It’s too early to call the end of the over-earning or normalization narrative,” said CFO Jeremy Barnum. The bank also saw provisions for loan losses and expenses rise more than expected.
Despite these challenges, JPMorgan reported strong inflows that exceeded analyst estimates, with a record quarterly profit of $18.1 billion, or $6.12 per share, a 25% increase from the same period last year. Analysts had projected $17.3 billion in profit, or $5.88 earnings per share. The bank also reported $50.2 billion in revenue for the three months ending June 30, a 22% year-over-year increase, surpassing analysts’ expectations of $42.23 billion. This was driven by a 50% rise in investment banking fees and a $7.9 billion gain from new Visa shares.