Profits for JPMorgan Chase (JPM) and Wells Fargo (WFC) surged in the second quarter while falling sharply at Citigroup (C), demonstrating a divide in how the banking world is faring as it recovers from a period of extreme turmoil.
JPMorgan and Wells Fargo showed that some giants can continue to make lots of money from consumer loans even as industry deposit costs rise, while leaning on their sprawling franchises to generate additional revenue during a challenging time.
What Citigroup revealed is that a number of problems continue to plague even the biggest institutions, especially those that rely heavily on revenues from dealmaking and trading.
Citigroup’s profit tumbled 36% in the second quarter, largely because of weaknesses in its Wall Street unit.
Other banks reporting next week, such as Goldman Sachs (GS) and Morgan Stanley (MS), could run into similar challenges.
“The long-awaited rebound in investment banking has yet to materialize, making for a disappointing quarter,” said Citigroup CEO Jane Fraser.
JPMorgan and Wells were up slightly in morning trading, while Citigroup was down.
The results kicked off a closely-watched earnings season where banks of all sizes will be trying to show that they recovered from one of the most tumultuous periods for the industry since the 2008 financial crisis.
JPMorgan demonstrated its hold over the rest of the industry during the chaos of the spring by winning a government-run auction to purchase the bulk of operations of First Republic after regulators seized the San Francisco lender.
First Republic was one of three sizable regional banks to fail, along with Silicon Valley Bank and Signature Bank. Their seizures triggered a panic in the banking system and outflows of depositors from a number of smaller banks.
The deal lifted JPMorgan’s second-quarter numbers. It said First Republic added $2.4 billion to net income. That helped push overall earnings to $14.5 billion, up 67% from the same period a year ago. Wells Fargo’s earnings of $4.9 billion were up 57%.
The industry is no longer at the same crisis level as it was in the spring, but second-quarter results from some of the biggest banks contained reminders that the industry still faces a number of challenges on several fronts.
Citigroup, for example, struggled with a recent drought of deal making that is making day-to-day life more difficult for all of Wall Street. Its investment banking revenues fell by 24%, to $612 million. Trading was another weakness. Revenue from that activity fell 13%.
Citigroup and other firms with big investment banking and trading units have made or announced cuts of roughly 12,000 jobs since the end of 2022. Dealmaking is drying up amid a rise in interest rates and economic uncertainty.
Even JPMorgan had challenges on this front. Its investment banking fees fell by 6% from a year ago to $1.5 billion. Its trading revenues from equities and fixed income also fell.
What JPMorgan, Wells and Citigroup had in common Friday is that they set aside more money to cover future loan losses, a sign they expect the economy to slow in the coming quarters.
Many other banks are also expected to do the same when they report their second-quarter results.
Wells Fargo set aside $1.71 billion in provisions for credit losses in the second quarter, compared with $580 million a year ago. That included including a $949 million increase primarily for commercial real estate office loans.
“I think things are better than people would have expected at this point in the cycle,” said Wells Fargo CFO Mike Santomassimo. “We do expect that they’ll be more weakness in the [commercial real estate] market and it’s going to take a while to play out. It’ll be a while before we see you know, the end of end of this.”
CEO Charlie Scharf said the US economy “continues to be resilient.”
JPMorgan CEO Jamie Dimon also sounded optimistic about the US economy, saying it “continues to be resilient” and that “consumers are spending, albeit a little more slowly.”
His CFO, Jeremy Barnum, told reporters the bank does not expect a lot of loan demand except for credit cards and autos. But “we don’t particularly expect to be tightening other than to the extent that individual borrow credit metrics deteriorate.”
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