Reality is setting in for three of the largest U.S. banks based on their second-quarter results. While some of the figures in earnings reports from JPMorgan Chase, Citigroup, and Wells Fargo offered reassurance to the banks and their investors, potential challenges remain visible.
All three banks, which reported earnings before the bell on Friday, showed growth in profits and revenues compared to last quarter and last year, aligning with or exceeding Wall Street estimates. However, their stock prices fell in morning trading. Net interest income (NII), a key measure of bank earnings from loans, was a focal point as both Wells Fargo and JPMorgan reported weaker results in this area.
At Citigroup, lower expenses and better-than-expected revenue and profits indicated that CEO Jane Fraser’s corporate overhaul might already be yielding results.
Here are some key takeaways from Friday’s earnings reports:
Citi’s transformative progress
Citigroup’s second-quarter earnings provided early insights into Fraser’s simplification plans completed in early 2024. This included layoffs and increased expenses, which concerned investors in prior quarters. However, the bank’s operating expenses fell 2% year-over-year during the three months ending June 30, thanks to savings from the simplification process. Citi reported expenses of $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 stated, emphasizing the progress in simplification both strategically and organizationally.
Citi’s revenue for the second quarter was $20.1 billion, up 4% from last year and matching Wall Street estimates. The bank’s net income was $3.2 billion, or $1.52 per share, surpassing analysts’ expectations of $1.39 per share. Despite strength in Citi’s Services division, challenges remain in growing market share and reducing expenses in other areas, according to Warren Kornfeld, senior vice president at Moody’s Ratings Financial Institutions Group.
While Citi’s shares initially rose by 2% in pre-market trading, they fell by more than 3% later in the day. Year-to-date, Citi’s stock has increased by over 20%. Fraser emphasized the bank’s ongoing efforts to address risk and compliance issues as part of its transformation, following $136 million in fines by federal regulators for data management problems.
Wells Fargo’s NII drop
Wells Fargo’s stock dropped over 7% on Friday morning after reporting a 9% decline in NII. The bank’s NII for the second quarter was $11.92 billion, below the $12.12 billion expected by analysts. Revenue and earnings per share beat Wall Street estimates, with revenue rising to $20.7 billion from $20.5 billion a year ago, and net income at $4.91 billion or $1.33 per share, slightly down from $4.94 billion the previous year.
Megan Fox, vice president and senior analyst at Moody’s Ratings Financial Institutions Group, noted that while Wells Fargo showed growth in fee revenue, NII and operating expenses remained challenging. The bank expects NII to bottom out in the second half of 2024 when the Federal Reserve is anticipated to cut interest rates.
JPMorgan’s mixed results
JPMorgan’s second-quarter results generated mixed reactions in the market. The bank’s stock fell 2% despite reporting $22.9 billion in NII, a 4% yearly increase that fell short of Wall Street’s estimates. JPMorgan maintained its annual NII projection at around $91 billion, disappointing investors who had hoped for a higher forecast.
JPMorgan’s record 2023 was fueled by high NII, which is expected to decline or “normalize” as anticipated rate cuts by the central bank come into play. Chief financial officer Jeremy Barnum emphasized it was too early to conclude the over-earning narrative or the normalization process. Provisions for loan losses and expenses exceeded expectations.
Despite these challenges, JPMorgan reported strong inflows, exceeding analyst estimates. The bank posted a record quarterly profit of $18.1 billion, or $6.12 per share in the second quarter, a 25% increase from $14.5 billion in the same period last year, surpassing Wall Street projections of $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.