How Did The Banks Do? (JPM, C, WFC, GS)

Three of the major US banks (JP Morgan, Wells Fargo, Citibank) released their earnings this Friday for Q2 to a more modest response from investors. JPM falls -1.2% but quickly rebounds 2.5% the following day, WFC drops -6.0% but rises 2.1% afterwards, Citi closes down -1.8% but also rebounds .96%.

Goldman also released earnings today, driving shares to close 2.6% higher.

BAC and MS will also be reporting earnings tomorrow at 6:45am and 7:30am respectively.

JP Morgan beats expectations but predicts less profitable future

JP Morgan beat the consensus EPS estimate of $4.27 by 43% at $6.12. However, this was largely due to a $7.9B net gain related to Visa shares which, after taking out the gain and other one-time items, results in an adjusted EPS of $4.40. 1Q24 EPS was $4.44 and 2Q23 EPS was $4.75.

Revenue hopped up 20% to $50.2 billion, much higher than predicted gains of 2.2%. Net interest income however fell short at 4% below the consensus 6.5% growth by analysts.

Net Income was $18.1 billion up 35% Q/Q while ROTCE was 28.0% up 700 BPs Q/Q. Again adjusting for one-time items, adjusted net income was $13.1 billion down 10.5% Q/Q and adjusted ROTCE of 20.0% which is down 100 BPs Q/Q.

JPM topped earnings expectations but prices fell due to a low net interest income prediction and an increased expense forecast.

Wells Fargo underperforms

Wells Fargo slightly beats the consensus EPS estimate of $1.29 by 3.1% at $1.33. Q1 2024 EPS was $1.20 while Q2 2023 EPS was $1.25. The earnings beat is largely muted by a falling net interest income and increased expense forecasts.

Net interest Income is down 2% Q/Q at $11.9 billion. WFC forecasted net interest income to stay down by 7-9% from $52.4 billion in FY23.

Expense forecasts increased $54 billion up from $52.6 billion. Q2 2024 expenses were up 2% to $13.3 billion Y/Y.

Ending deposits and loans are down across the board causing the drop in net interest income. This is partially offset by the 70% Y/Y increase in investment banking fees. However, this is an industry wide trend due to the stabilization of interest rates which all the major banks saw in Q2.

Citi tops expectations but still in a rebuild

Citi beats consensus EPS estimate of $1.39 by 9.4% at $1.52. This was largely due to a large cut in costs but with slow-to-no top line growth.

Net interest income stayed flat at $13.5 billion Q/Q. Expenses were down 6$ Q/Q at $13.4 billion. Total net income is down 5% Q/Q at 3.2 billion but up 10% Y/Y.

Citi received $136 million dollars in fines from the Fed and OCC on data quality management. This has been a large problem for them over the past decade and has driven a large hiring wave in the internal audit space. Fraser addressed this problem in the last investors conference and hopefully Citi will finally resolve the issue.

Goldman also released their earnings today with an EPS of $8.62. The strong performance of investment banking in the last quarter greatly benefited them and increased investors confidence in the broader banking sector.

Overall message

Due to their central place in the financial system, banks are often an indicator of the health of the broader economy, placing a great deal of importance on their strength. Banks have seen their environment change greatly over the past year due to high inflation, changing consumers spending/saving habits. Higher rates have increased interest income but also borrowing costs.

The recent stabilization in rates has allowed banks to adapt but changes can be anticipated soon due to economic data/Fed sentiment leading to a possible September rate cut as well as impending implications of the upcoming election.