Banks Dissapointed Wall Street With Net Interest Income

The earnings season has been offically kicked off by JP Morgan Chase (NYSE: JPM) that reported earnings and revenue well beyond Wall Street estimates. But other big banks also joined in with their second quarter reports. Wells Fargo & Company (NYSE: WFC) and Citigroup Inc (NYSE: C) also posted better-than-expected earnings and revenue. But, net interest income fell short of implications and banks showed they are expecting macroeconomic conditions to worsen.

Wells Fargo & Company

For the second quarter, Wells Fargo reported its revenue rose to $20.69 billion, suprassing LSEG’s estimate of 20.29 billion. Net income diped to $4.91 billion, but its earnings per share of $1.33 also surpassed LSEG’s estimate of $1.29 cents. Wells Fargo recorded $11.92 billion in net interest income that fell by 9% YoY.

Citigroup

Citigroup reported its second quarter revenue rose 4% YoY to $20.14 billion.

Due to the revival of Wall Street activites like IPOs and mergers, Citigroup reported investment banking revenue expanded by as much as 60% to $853 million. Equities trading revenue also rose 37% to $1.5 billion. Fixed income revenue dipped 3% to $3.6 billion. Net income jumped 10% YoY to $3.22 billion.

Citigroup CEO Jane Fraser emphasized that the latest results show progress in executing the strategy and reflect the benefits of the bank’s diversified business model. But, this week Citigroup was rebuked for failing to fix as many as six of its regulatory shortfalls which will require additional explanations.

JPMorgan Chase

Fueled by better-than-expected investment banking fees and equities trading results, JPMorgan Chase reported revenue grew by 20%YoY to $50.99 billion. Investment banking fees alone surged 52% YoY to  $2.3 billion. Equities trading revenue jumped 21% to $3 billion

Earnings rose 25% YoY to $18.15 billion and excluding items related to the its stake in Visa, adjusted profit amounted $4.26 per share.

However, CEO Jamie Dimon warned of the complex geopolitical situation that is potentially the most dangerous since World War II, with its outcome and effect on the global economy still being unknown.

By reporting a $3.05 billion provision for credit losses, JPMorgan clearly showed it expects more defaults and therefore, rough times ahead for the US economy. But its latest quarter has reflected quite a healthy consumer, despite some weakness in the lower-income segment.

Recap

Wall Street deal making continued coming back to life following a two-year-long sleep. All three banks reported trading revenue went up. But stocks of all three fell as higher interest rates and elevated deposit costs shrinked consumer banking margins. Altogether, banks warned of stress among the lower income consumer segment. Banks clearly showed they are expecting worsening credit conditions by setting aside more finds for future loan losses. But the sequential drop of a key measure that is net interest income, a central driver of profit for any bank, is what really concerned investors as customers continued shifting towards higher-yielding deposit products.

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