Despite recent instability in the banking industry, earnings season got off to a good start last week, with major banks like JPMorgan Chase, Citigroup, and Wells Fargo all beating analysts’ projections.
JPM posts massive earnings
JPMorgan had a quarter-over-quarter increase in profits of 55% to $4.10 per share on revenue growth of 25% to a record $38.35 billion. The consensus forecast for Friday’s report was for earnings to surge 29% to $3.41 per share on revenue growth of 17.7% to $36.13 billion.
At the close of the quarter, deposits were up 2% year over year, totaling $2.37 trillion, as more money flooded into the financially secure behemoth. In contrast, deposits fell by 7% annually. Revenue from interest on loans and investments increased by 49% to $20.9 billion, and the company increased its projection for the year’s net interest income to $81 billion.
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Provision for credit losses at JPMorgan fell to $2.275 billion from Q4’s $2.288 billion. Following the results, the stock price rose 8%, completely erasing the decline after the SVB failure.
“Goliath is really really winning,” Wells Fargo analyst Mike Mayo wrote in a note to clients. “There is no evidence of a banking crisis except that it seems that JPM has been a port in the storm.”
JPM 30m chart, source: author´s analysis, tradingview.com
Citigroup soars after the report
After falling for five consecutive quarters, Citi’s earnings increased to $2.19 per share, an increase of 8%. Financial experts predicted an 18% drop in earnings for Citi. However, the 11.1% revenue increase to $21.45 billion was more than expected.
Analysts expected a rise of 18% in net interest income, but the 23% increase really materialized. First-quarter deposits increased somewhat from the previous quarter’s $1.131 billion to $1.147 billion.
Provisions for credit losses at Citigroup rose to $1.975 billion, a 7% rise over year-end levels. Citi only allocated $755 million for loan losses in the first quarter of 2022.
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In light of the results, Citi reaffirmed its projection for 2023. Revenue is expected to be between $78 billion and $79 billion, with a net interest income of $45 billion for the whole year. As a result, the stock price soared 5% on Friday.
Citigroup 30m chart, source: author´s analysis, tradingview.com
Wells Fargo stumbles despite record numbers
Wells Fargo’s earnings rocketed by over 40% to $1.23 per share, comfortably above forecasts of a 28% increase. In addition, the 17% increase in sales surpassed projections of $20.1 billion. This was the strongest increase in top-line revenue in recent memory.
The company’s net interest income increased by 45% yearly, reaching $13.34 billion. This was more than analysts had predicted. However, the $1.356 billion in deposits represents a drop of 2% from the year-end and a drop of 7% from the first quarter of 2022.
At $1.2 billion, Wells Fargo’s credit loss provisions are 26% more than they were at the year’s end.
Wells Fargo reiterated its full-year net interest income growth target of 10% compared to 2022 during its results call. However, the bank anticipates “a little bit of a step down” from the first to the second quarter. Despite the stellar earnings report, the stock price failed to rally and closed flat on Friday.
WFC 30m chart, source: author´s analysis, tradingview.com
The results show that the industry faces various difficulties that will test even the largest and most robust banks and put pressure on some of their smaller, weaker rivals, even if the crisis has ended.
First and foremost is the impact of interest rate increases on deposits and loans, especially on net interest income, a crucial indicator of financial health. A bank’s net interest margin is its earnings less its expenses.