The Q1 earnings season is officially underway with three big banks (JPMorgan, Wells Fargo, and Citigroup) reporting very solid results on Friday. As expected, the big money managers showed strong resiliency despite the recent banking stability concerns and tough macro.
JPMorgan crushes estimates
Shares of JPMorgan Chase (NYSE: JPM) closed up more than 7% on Friday after the Wall Street giant reported better-than-expected profit and revenue in Q1 2023. The bank reported adjusted earnings per share (EPS) of $4.32, topping the consensus estimates of $3.41 per share, according to Refinitiv.
Revenue hit a new quarterly record of $39.34 billion, up 25% year-over-year, and well above the consensus projection of $36.19 billion. The surge in revenue was fueled by a 49% increase in net interest income to $20.8 billion after a series of robust interest rate hikes by the Federal Reserve over the past year.
JPMorgan weekly chart (TradingView)
JPMorgan also reported a profit increase of 52% to $12.62 billion in the first quarter or $4.10 per share, including $868 million in losses on securities.
Looking ahead, the bank expects net interest income to be around $81 billion in 2023, $7 billion higher than the previous estimates of $71 billion. The stronger forecast comes amid expectations that the bank would have to pay less to depositors if the Fed trims rates.
“The U.S. economy continues to be on generally healthy footings — consumers are still spending and have strong balance sheets, and businesses are in good shape,” CEO Jamie Dimon said in a release.
“However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks,” added Dimon.
Meanwhile, the bank also reported a 7% drop in total deposits from the year-ago quarter to $2.38 trillion, though still above the consensus estimates of $2.31 trillion. Quarter-on-quarter, the deposits rose by 2% thanks to a “significant new account opening activity” and deposit inflows in its commercial banking unit.
Wells Fargo fails to rally despite solid results
JPMorgan’s rival Wells Fargo also reported strong profits on Friday, boosted by the Fed’s monetary policy tightening. The San Francisco, California-based bank reported EPS GAAP of $1.23 in Q1, up from 90 cents a year ago and above the analysts’ estimates of $1.13 per share.
Wells Fargo weekly chart (TradingView)
The company said its net income surged by over 30% to almost $5 billion in the three-month period, while its net interest income rose 45% year-over-year. Net interest income refers to the bank’s profits from lending money, minus what it pays out to clients.
Revenue rose 17% to $20.73 billion in the first quarter, beating the analysts’ expectations of $20.08 billion.
“We had strong results in the first quarter including revenue growth from both the fourth quarter and a year ago, and we continued to make progress on our efficiency initiatives,” CEO Charlie Scharf said.
In the meantime, Wells Fargo reserved $1.2 billion for credit losses after slashing its provisions by $787 million a year ago. This provision included a $643 million jump for potential losses relating to real estate, auto, and credit card loans.
The bank reported a drop in noninterest income of 13% in the period amid poor results in its affiliated venture capital (VC) and private equity (PE) units, as well as a decrease in its mortgage banking profit.
The former mortgage giant has rotated away from the housing market recently, cutting hundreds of mortgage banking positions as part of sweeping layoffs in the wake of the bank’s latest strategic shift.
The shift comes due to a loan volumes crunch triggered by record-high interest rates, forcing the US banking bigwigs and other firms to reduce thousands of mortgage positions in the past year.
Wells Fargo maintained its full-year guidance.
Citi also delivers
High-interest rates boded well for all major banks in the US, including Citigroup. The bank reported better-than-anticipated net income and revenue in the first quarter on Friday, boosting its shares up nearly 5% on the day.
The bank reported a Q1 net income of $4.6 billion, up from $4.3 billion in the year-ago quarter. Revenue came in at $21.45 billion, up 12% from a year ago, while analysts were expecting $19.99 billion, according to Refinitiv.
The strong results were partly driven by an 18% year-over-year increase in personal banking revenue amid elevated interest rates. Fixed income markets revenue climbed 4% year-over-year, although that surge was overshadowed by declines in the equity market and investment banking revenues.
Citi reported a total provision for loan losses of $1.98 billion, compared to the estimated $1.89 billion, and up 7% on a quarterly basis. Recent collapses of the Silicon Valley Bank and Signature Bank have weighed on the economic outlook, and could possibly lead to a slowdown in loan growth across the US economy.
Citigroup weekly chart (TradingView)
However, Citigroup CEO Jane Fraser said the bank remains well-positioned “to navigate whatever environment we face, which is particularly relevant given the degree of uncertainty today.”
“We expect the recent events to be disinflationary and credit to contract. We believe it is now more likely that the U.S. will enter into a shallow recession later this year,” Fraser told investors during the earnings call.
Fraser also noted a “notable softening” in consumer spending in the latest quarter.
The bank reiterated its forecast for the full fiscal year despite strong Q1 results, due to uncertainty around the economy and Fed’s future interest rate plans. Citi said its deposits fell 3% quarter-over-quarter to $1.33 trillion, though it reported around $30 billion in deposit inflows during the last three weeks of March.
Meanwhile, the bank shuttered two divestitures during the quarter as part of its broader overhaul away from international retail banking.
Morgan Stanley, Bank of America, and Goldman Sachs are due to report this week and join the three big banks that reported on Friday. The sentiment for banks remains cautious despite better-than-expected Q1 reports from JPMorgan and others.