US big bank earnings a mixed bag

Two US banks have kicked off earnings season by coming out strong. So what does it say about consumer and investor confidence? While higher interest rates might be hurting some US consumers, it may have helped US banks to laugh all the way to the, erm, bank. Like the largest bank in the US, JPMorgan Chase (JPM), which reported their second quarter earnings last Friday. 

The banking behemoth - and one of the world’s largest - announced they beat a slew of Wall Street estimates thanks to benefiting from higher US interest rates, among other factors. 

• Profit grew 67% and revenue was up 34% - numbers that tower over New Zealand’s largest bank ANZ’s six-month revenue climb of 4% 
• Net interest income lifted 44%, to a bankable US$21.9 billion, helped in part by the bank’s operating efficiencies that mirror much smaller banks

JPMorgan Chase’s Monopoly Board move 🎲 

The cash cow for JPMorgan Chase has also likely been their new ownership of collapsed First Republic Bank. They were awarded the right to purchase in a government-run auction, adding around US$173 billion of loans and $30 billion of securities to their coffers. While news of the acquisition initially dipped investor confidence, JPMorgan’s stock has climbed 8.6% since the 1 May announcement, and is up nearly 36% since mid-July last year. 

At ATMs across the road…

Also reporting last Friday were Wells Fargo (WFC) and Citigroup (C), both beating analysts’ expectations, if only slightly. 

• The fourth-largest US bank, Wells Fargo, reported a 57% profit hike, with total net income rising to US$4.9 billion compared to US$3.1 billion in the second-quarter last year
• Wells Fargo year-to-date (YTD) shares are up nearly 2.5%, and 8.6% since the same time last year
• Citigroup’s net income, at US$2.9 billion, was 36% lower than the same time last year with revenue down 1%, but investors gained, adding US$2 billion of dividends to their pockets
• Citigroup’s YTD share price has lifted slightly to just under 1% but down 7% in a year

Citigroup CEO Jane Fraser presented the bank’s ‘strong balance sheet’, but she called out higher expenses and the ‘challenging macroeconomic backdrop’. She explained the bank’s ‘disappointing quarter’ saying ‘the long-awaited rebound in investment banking has yet to materialise’. Following Citigroup’s earnings announcement, the bank’s share price has slumped nearly 3%.

A cul-de-sac of mortgage revenue decline? 🏘️ While the results appear more upbeat than analysts’ expectations, the higher interest rate climate has impacted bank’s mortgage revenue. JPMorgan’s mortgage lending revenue fell 23% from the same time last year. And Wells Fargo’s home lending dropped 13%, with new mortgages down 77%.

Cool your jets: Banks deflating US optimism?

Despite US inflation cooling for 12 consecutive months and Americans feeling the best they’ve felt about the US economy in nearly two years, the big bank chiefs are united in saying their economy may not be out of recessionary woods yet.

• Wells Fargo CEO Charlie Scharf said the US economy ‘continues to perform better than many had expected’, but advised caution while ‘uncertainty remains’
• JPMorgan Chase CEO Jamie Dimon echoed the sentiment, saying ‘the US economy continues to be resilient,’ adding that consumers are still spending, ‘albeit a little more slowly’, and he warned of recession possibility 
• Sipping from the same cup-half-empty, JPMorgan Chase CFO Jeremy Barnum added that the ‘euphoria about immaculate disinflation’ may mean the US is ‘through the worst of it’, but that it’s still too early to say 🥛

Meanwhile, investors in the second largest US bank, Bank of America (BAC) don’t seem stoked. 👎 The bank, which reports earnings this week and declared dividends last week, was whacked with a US$250 million fine by US federal regulators for alleged double-dipping on fees. Following the news, their share price has dipped 2%, which adds to their YTD plummet of 12% and one year drop of nearly 9%.