Reality is beginning to settle in for three of the largest U.S. banks, according to their second-quarter results. While some aspects of the earnings reports for JPMorgan Chase, Citigroup, and Wells Fargo brought relief to the banks and their investors, potential challenges remain on the horizon.
All three banks, which reported earnings before the market opened on Friday, experienced growth in profits and revenues compared to the previous quarter and the same period last year. These results also met or exceeded Wall Street estimates. However, their stock prices fell during morning trading on Friday, with net interest income (NII) taking center stage as both Wells Fargo and JPMorgan reported weaker figures related to this measure.
At Citigroup, lower expenses and better-than-expected revenue and profits hinted that CEO Jane Fraser’s corporate overhaul might already be yielding positive outcomes. Citi’s earnings gave investors insight into the early results of Fraser’s simplification plans, completed in early 2024. Despite the turbulence of the last two quarters due to layoffs and additional expenses, operating expenses fell 2% year-over-year for the three months ended June 30, totaling $13.4 billion.
“Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Fraser stated, highlighting significant progress in simplification, both strategically and organizationally. Citi reported second-quarter revenue of $20.1 billion, up 4% from last year and matching Wall Street estimates. Net income was $3.2 billion, or $1.52 per share, exceeding analysts’ expectations of $1.39 per share. However, challenges remain for Citi in growing its market share and reducing expenses in other areas.
Despite a 2% increase in pre-market trading, Citi’s stock dropped more than 3% in morning trading. Year-to-date, Citi’s stock has risen over 20%. Fraser emphasized that the bank continues to address risk and compliance issues as part of its ongoing transformation, noting $136 million in fines from federal regulators for “insufficient progress” on fixing data management problems.
Meanwhile, Wells Fargo’s stock plunged more than 7% after reporting a 9% drop in NII. The bank saw $11.92 billion in NII during the second quarter, falling short of analysts’ expectations of $12.12 billion. Both its revenue and earnings per share beat Wall Street estimates, with revenue rising to $20.7 billion and net income declining slightly to $4.91 billion, or $1.33 per share.
“Wells Fargo’s second-quarter results showcase growth in fee revenue while underscoring ongoing headwinds for NII and operating expenses,” said Megan Fox, vice president and senior analyst of Moody’s Ratings Financial Institutions Group. The bank expects NII to bottom out in the second half of 2024, correlating with anticipated Federal Reserve interest rate cuts.
JPMorgan’s second-quarter results also had a mixed reception. The stock fell 2% after reporting $22.9 billion in NII, a 4% yearly increase but below Wall Street’s estimates. Despite maintaining its NII projection at approximately $91 billion, some investors were disappointed that the bank did not raise its forecast this quarter.
Nevertheless, JPMorgan reported a record quarterly profit of $18.1 billion, or $6.12 per share, a 25% increase from the same period last year, surpassing the $17.3 billion in profit and $5.88 earnings per share projected by analysts. Revenue for the quarter was $50.2 billion, up 22% year-over-year and exceeding the $42.23 billion estimated by analysts. This was driven by a 50% rise in investment banking fees and a $7.9 billion gain from new Visa shares.
Overall, while JPMorgan reported strong inflows that beat analyst estimates, increasing provisions for loan losses and expenses posed challenges.