Reality is starting to set in for three major U.S. banks, based on their second-quarter results. The earnings reports from JPMorgan Chase, Citigroup, and Wells Fargo provided some relief to the banks and their investors, although there are still potential challenges looming.
All three banks, which reported earnings before the market opened on Friday, showed growth in profits and revenues compared to both the previous quarter and the previous year. These results met or exceeded Wall Street estimates.
However, their stock prices fell in early trading on Friday. Net interest income (NII), a key measure of how much banks earn from loans, was a major focus this quarter as Wells Fargo and JPMorgan reported disappointing results related to this metric.
At Citi, lower expenses and better-than-expected revenue and profits indicated that CEO Jane Fraser’s corporate overhaul might already be showing positive results.
Here are the key takeaways from Friday’s earnings reports.
The Impact of Jane Fraser’s Transformation at Citi
Citi’s second-quarter earnings revealed early outcomes of Fraser’s simplification plans, completed in early 2024. These changes resulted in significant layoffs and additional expenses, which had concerned investors over the past two quarters.
However, the bank reported a 2% year-over-year decrease in operating expenses for the three months ending June 30, attributing this to savings from the simplification efforts. Expenses totaled $13.4 billion for the quarter.
“Our results demonstrate the progress we are making in executing our strategy and the benefits of our diversified business model,” Fraser said in a statement, highlighting the substantial progress in both strategic and organizational simplification.
Citi reported $20.1 billion in revenue for the second quarter, up 4% from last year and matching Wall Street estimates, according to FactSet. The bank saw net income of $3.2 billion, or $1.52 per share, surpassing analysts’ expectations of $1.39 per share.
Despite strong quarterly results in Citi’s Services division, Warren Kornfeld, senior vice president at Moody’s Ratings Financial Institutions Group, noted that Citi still faces challenges in growing its market share and reducing expenses in other areas.
“The path to improved profitability still faces challenges but will include successes and setbacks,” Kornfeld told Quartz. “Importantly for bondholders, the bank continues to maintain or even strengthen its capital and liquidity levels.”
Citi’s stock rose 2% in pre-market trading on Friday but fell over 3% in early trading. Citi’s stock has gained more than 20% this year.
Fraser mentioned during an analyst call that Citi continues to address risk and compliance issues as part of its 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 directly,” Fraser said.
Challenges for Wells Fargo
Wells Fargo’s stock dropped more than 7% on Friday morning after reporting a 9% decline in NII.
The San Francisco-based bank reported $11.92 billion in NII for the second quarter, below analysts’ expectations of $12.12 billion, according to FactSet.
Despite this, both its revenue and earnings per share exceeded Wall Street estimates. Revenue increased to $20.7 billion from $20.5 billion year-over-year. Net income decreased to $4.91 billion, or $1.33 per share, for the quarter, down from $4.94 billion a year earlier.
“Wells Fargo’s second-quarter results highlight growth in fee revenue but also ongoing challenges for net interest income and operating expenses,” Megan Fox, vice president and senior analyst at Moody’s Ratings Financial Institutions Group, said in a statement.
Wells Fargo expects NII to bottom out in the second half of 2024, coinciding with anticipated interest rate cuts by the Federal Reserve.
Mixed Feelings for JPMorgan
JPMorgan’s second-quarter results received a mixed response from the market, with its stock falling 2% after reporting $22.9 billion in NII, a 4% yearly increase but short of Wall Street’s estimates. The bank maintained the guidance it provided at its annual Investor Day earlier this year, keeping NII projections around $91 billion, disappointing some investors who hoped for an increase.
High NII contributed to JPMorgan’s record 2023, but the metric is expected to decrease this year due to anticipated rate cuts by the central bank.
“It’s too early to call the end of the over-earning or normalization narrative,” CFO Jeremy Barnum said during an analyst call. The bank has refrained from speculating on Federal Open Market Committee decisions.
Provisions for loan losses and expenses were higher than expected. Still, JPMorgan reported strong inflows that surpassed analyst estimates. The bank achieved a record quarterly profit of $18.1 billion, or $6.12 per share, a 25% increase from $14.5 billion the previous year, beating Wall Street’s projected $17.3 billion or $5.88 per share, according to FactSet.
JPMorgan reported $50.2 billion in revenue for the three months ending June 30, a 22% year-over-year increase, well above the $42.23 billion expected by analysts. This growth was driven by a 50% increase in investment banking fees and a $7.9 billion gain from new Visa shares.