JP Morgan, Citigroup and Wells Fargo’s second-quarter earnings are better than expected

Today, three leading US banks – JP Morgan, Citigroup and Wells Fargo – opened the banking reporting season for the second quarter. Analysts feared that their operations would be negatively affected by the spring problems in the banking sector, which led to the bankruptcy of several regional banks. JP Morgan and Wells Fargo delivered results that beat analysts’ forecasts, posting earnings growth of 67% and 57%, respectively. Citigroup also announced a 36% drop in quarterly profit, but in general, its results also turned out to be better than expected.

Many analysts look forward expected US bank statements for the second quarter. April-May in the USA observed tense situation in the segment of regional banks, which caused concern for the entire banking industry as a whole. May 1 Federal Deposit Insurance Corporation (FDIC) announced on the closure of First Republic Bank, which came under the external management of the FDIC, and then transferred to JP Morgan Chase. As of April 13, 2023, First Republic Bank had total assets of approximately $229.1 billion and total deposits of $103.9 billion. First Republic Bank became the third US bank to fail in the spring: in March, the FDIC closed Signature Bank, then same went bankrupt Silicon Valley Bank.

Today JP Morgan reported that its net income for the second quarter was $14.5 billion, up 67% from a year earlier. Total revenue reached $41.3 billion, up 34% from the second quarter of the previous year.

JP Morgan’s consumer operations were the main drivers of growth, with credit card spending up 8% and auto loan balance up 16%.

Investment operations showed more modest results: revenue increased by 4%, profit – by 10%. As noted The Wall Street Journal, the First Republic Bank bailout brought the bank $2.7 billion in additional revenue in new customers, deposits and loans, but forced it to write off $1.2 billion in loans due to delinquent debts from the failed bank’s clients. After the publication of the quarterly report, shares of JP Morgan rose by 2.5%.

Bank Wells Fargo, traditionally more active in the retail sector, also showed impressive results that exceeded analysts’ forecasts. Profit in the second quarter was $4.94 billion, up 57% from a year earlier. This was $1.25 per share, while analysts interviewees FactSet, expected $1.16. Revenue increased by 20%, to $20.5 billion, analysts predicted $20.1 billion.

However, the bank felt the nervous situation in April-May – according to the results of the second quarter, the volume of deposits decreased by 6%, and write-offs on bad loans amounted to twice as much as a year earlier, $ 766 million. Given this situation, the bank allocated another $949 million

“We are at the very beginning of a cycle,” Wells Fargo CFO Mike Santomassimo warned at the presentation of the results. “This situation can continue for quite some time.”

After the release of the quarterly report, Wells Fargo shares rose in price by 3.5%.

Another American bank from the “big six” – Citigroup — showed significantly worse results for the second quarter today. Net income was $2.9 billion, down 36% from a year earlier. At the same time, total revenue decreased by only 1%, to $19.4%. The bank attributed the sharp decline in profits to rising costs and loan servicing in the second quarter. Citigroup’s investment banking operations were also affected by market uncertainty and more cautious investor and issuer behavior. Revenue from Citi’s operations in the capital markets fell by 13%, commissions from investment banking – by 24%.

The investment banking divisions of many banks are suffering from a sharp decline in activity in the capital markets, as well as in the mergers and acquisitions market due to uncertainty in the global economy. By data Dealogic, the global M&A market fell 37% last year to $3.66 trillion. A year earlier, the volume of this market reached a record $5.9 trillion. According to Bloomberg estimates, global M&A volume fell 42% in the first half of this year. In June FT reported that due to the reduction in the number of transactions, banks around the world received only $ 12.8 billion in commissions and other fees for transactions in the first half of the year – this is 35% less than a year earlier.

After the publication of the quarterly report, Citigroup quotes fell 1%.

Analysts believe that such a slight decline against the backdrop of a sharp drop in profits may be due to the fact that the market as a whole expected such indicators from the bank, and according to some indicators, Citigroup even surpassed forecasts. Analysts polled by Refinitiv expected $19.29 billion in revenue from the bank, while Citi received $19.44 billion. The forecast for net income per share was $1.3, but the bank earned $1.33.

Evgeniy Khvostik