Well-Run Big Banks Showed How Well They Can Navigate A Challenging Environment

Last week ended by JPMorgan Chase & Co JPM, Citigroup Inc C and Wells Fargo & Company WFC kicking off the third quarter earnings season by reporting profits that exceeded expectations. 

JPMorgan Chase & Co Topped Profit Estimates Fueled By Record Interest Income

On Friday, JP Morgan Chase topped third quarter profit estimates due to rising borrowing costs and its rescue of First Republic Bank resulting in record income from interest payments. Even excluding the impact of the First Republic acquisition, net interest income rose 21% and JPMorgan Chase lifted the full year NII guidance by $2 billion to $89 billion, although Chief Financial Officer Jeremy Barnum warned that current NII levels were not sustainable and could moderate to about $80 billion. On the back of an improved macroeconomic outlook, the biggest U.S. lender released $113 million in net reserves during the reported quarter. Unlike its rivals, JPMorgan still manages to avoid mass layoffs with its workforce even growing 3% during the reported quarter due to the First Republic acquisition. But even JPMorgan is not immune to the investment banking lull as its revenue dropped 6% to $1.6 billion.

For the quarter ended on September 30th, JPMorgan earned a profit of $13.15 billion which translates to a 35% increase with adjusted earnings amounting to $4.50 per share. Consumer business remains a key area of growth.

Citigroup Also Topped Profit Estimates Expectations Despite Managerial Changes

While undergoing its biggest corporate structure sweeping in decades, Citi reported its net income rose 2% YoY to $3.5 billion due to a surge in trading revenue, higher investment banking fees and interest payments. Adjusted earnings per share amounted to $1.52 per share, topping LSE’s estimate of $1.21 while overall revenue expanded 9% to $20.1 billion. One of its Q3 stars was trading revenue that rose 10% to $4.5 billion. Investment banking fees skyrocketed 34% while personal banking and wealth management division expanded 10% to $6.8 billion. But expenses also rose 6% to $13.5 billion as a consequence of rising costs, investments in control systems and severance payments. Citi is making big changes in how it is being run throughout the corporate ladder, aiming to cut 50% of internal management reporting in order to centralize decision making. CFO Mark Mason noted that the U.S. economy keeps surprising with its resilience, but Citi is still expecting a mild recession next year. The third largest U.S. lender also lifted its NII annual guidance from $46 billion to more than $47.5 billion. 

Well Fargo Also Comfortably Topped Estimates As It Works On Rebuilding Its Reputation

During the third quarter, Wells Fargo reported its NII rose 8% YoY to $13.1 billion, with earnings of $1.48 per share topping LSEGs estimate of $1.24 per share. Revenue amounted to $20.86 billion, also easily topping estimates of $20.11. As it continues to work on rebuilding its reputation that was harmed by a six-year-old scandal over sales practices, Wells Fargo lifted its full year NII income guidance by guiding for 16% YoY growth, lifting its prior 14% growth guidance.

Big Banks Showed Their Resilience But Still Warned Of Tough Times

JPMorgan Chase CEO Jamie Dimon commented, this is the most dangerous time the world has witnessed in decades. But the above banking players showed just how well well-run banks can do even during tough times yet they all warned that trouble is coming.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.