Reality is beginning to settle in for three of the largest U.S. banks, as shown by their second-quarter results. While some aspects of the earnings reports from JPMorgan Chase, Citigroup, and Wells Fargo provided a sense of security for the banks and their investors, potential challenges still loom on the horizon.
As predicted, all three banks reported increased profits and revenues compared to the previous quarter and the same period last year. These results generally met or exceeded Wall Street estimates.
However, despite these positive results, the banks’ stocks fell during morning trading on Friday. Net interest income (NII), a crucial measure of earnings from loans, was a focal point this quarter. Both Wells Fargo and JPMorgan reported disappointing NII figures.
In contrast, Citigroup reported lower expenses along with higher-than-expected revenue and profits, suggesting that CEO Jane Fraser’s corporate overhaul might be taking effect.
Here are some of the key takeaways from Friday’s earnings reports:
Jane Fraser’s Citi Transformation
Citi’s second-quarter earnings offered a glimpse into the results of Fraser’s simplification strategy, which was completed in early 2024. While the process involved significant layoffs and added expenses, which concerned investors in previous quarters, the bank’s operating expenses fell 2% year-over-year in the three months ending June 30. This was attributed to savings from the simplification process, with expenses totaling $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, citing progress in both strategic and organizational simplification.
Citi’s revenue for the quarter was $20.1 billion, a 4% increase from last year and in line with FactSet 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, Citi continues to face challenges in expanding its market share and reducing expenses in other areas. “The transformation and path to improved profitability still has a ways to go and will be met by successes as well as by setbacks,” said Warren Kornfeld, senior vice president at Moody’s Ratings Financial Institutions Group.
Shares of Citi showed a mixed response, rising 2% in pre-market trading but slipping more than 3% in the morning.
Wells Fargo’s NII Decline
Wells Fargo saw its stock plunge more than 7% on Friday morning after reporting a 9% decline in NII. The bank reported $11.92 billion in NII for the second quarter, falling short of the $12.12 billion expected by analysts.
Nevertheless, Wells Fargo’s revenue and earnings per share exceeded analysts’ estimates. Revenue increased to $20.7 billion from $20.5 billion a year ago, while net income slightly declined to $4.91 billion, or $1.33 per share, from $4.94 billion last year.
Despite these figures, the bank expects NII to bottom out in the second half of 2024, coinciding with anticipated interest rate cuts by the Federal Reserve.
JPMorgan’s Mixed Results
JPMorgan’s second-quarter results garnered mixed reactions. The bank’s stock fell 2% following its earnings report, which revealed $22.9 billion in NII, a 4% yearly increase but below Wall Street’s estimates. The bank maintained its previous guidance, keeping NII projections around $91 billion.
JPMorgan saw a record quarterly profit of $18.1 billion, or $6.12 per share, up 25% from $14.5 billion in the same period last year. Analysts projected $17.3 billion in profit, or $5.88 per share. The bank’s revenue reached $50.2 billion, a 22% year-over-year increase, surpassing the $42.23 billion expected by analysts. This was driven by a 50% rise in investment banking fees and a $7.9 billion gain from new Visa shares.
Provisions for loan losses and expenses both rose more than expected, adding to the mixed responses to the bank’s quarterly results.