JPMorgan Chase, Citigroup and Wells Fargo all beat Wall Street expectations when they reported quarterly earnings Friday morning.
The three major banks kicked off 2024 with strong revenues and earnings per share (EPS), bolstered by sunny market conditions and a strong U.S. economy in the first three months of the year. Despite shining balance sheets, each bank suffered charges from increased Federal Deposit Insurance Corporation special assessment costs tied to last year’s regional bank failures.
But the banking giants also emphasizsed the uncertainty facing their operations stemming from macroeconomic, geopolitical, structural, and regulatory challenges.
Here’s what you need to know about Friday’s bank earnings reports.
JPMorgan Chase extends boom, but Jamie Dimon is cautious
The largest U.S. bank kept up its momentum after 2023 was its most profitable year ever. JPMorgan beat Wall Street’s earnings expectations across the board. It reported $41.9 billion revenues in the three months ended March 31, up 9% from the same period last year and topping analysts’ projected $41.67 billion.
The banking giant also posted earnings per share of $4.44, surpassing the $4.17 expected by analysts, according to estimates compiled by FactSet. This brought its net income to $13.4 billion, a 6% increase from its profits a year earlier.
Despite the overwhelmingly positive results, CEO Jamie Dimon doubled down on his efforts to caution against relying too heavily on economic projections and forecasting, and he emphasized that anything can happen (even 8% interest rates).
“We don’t really know what’s going to happen,” Dimon said in a call with analysts Friday.
“You have to ask the question: What if other things happen, like higher rates, or a modest recession, etc., and then all these numbers change?” he said. “I just don’t think any of us should be surprised if and when that happens.”
JPMorgan stock was down about 5% in midday trading on Friday after the bank gave somewhat downbeat guidance on its net interest income for the remainder of 2024. The stock is up about 7% so far this year and almost 44% over the last 12 months.
“The firm’s economies of scale and the diversification of its business mix protects bondholders and leaves the bank in a robust position to navigate geopolitical, economic and other uncertainties,” Peter Nerby, a senior vice president at Moody’s Ratings, said in a statement Friday.
JPMorgan is coming off of a red hot 2023. The largest U.S. bank by assets saw $49.6 billion in profits last year, including a $4.1 billion windfall from its acquisition of First Republic Bank. JPMorgan scooped up the San Francisco-based bank last May amid the regional banking crisis.
And the acquisition is continuing to pay off for JPMorgan: In the first quarter of 2024, First Republic contributed $668 million in net income. This is the last quarter that the bank will report First Republic’s contributions separately, since its effects will be comparable by next quarter.
The bank has undergone some reshuffling over the last few months, giving a number of key executives “new and increased responsibilities” and installing new leadership in its capital markets and investment banking divisions.
In its annual proxy statement, the board of directors said it has been particularly focused on succession planning as it seeks potential replacements for its long-serving CEO. Top contenders for the coveted position include Jennifer Piepszak and Troy Rohrbaugh, the newly appointed co-CEOs of the bank’s expanded commercial and investment bank; Marianne Lake, CEO of consumer and community banking (who oversaw much of the First Republic acquisition); and Mary Erdoes, CEO of asset and wealth management.
Citigroup caps off its reorganization
Citigroup topped analysts’ expectations with net income of $3.4 billion, or $1.58 per share in the first quarter of 2024 — compared with an estimated EPS of $1.20. The bank saw a 26% decline in its profits compared with the same period a year earlier, owing to “higher expenses, the higher cost of credit and the lower revenues,” it said.
Citi reported $21.1 billion in revenues, down 2% year-over-year but surpassing Wall Street’s estimated $20.4 billion, according to data compiled by FactSet.
Burgeoning operating expenses as part of the company’s massive organizational overhaul still weighed heavily on its earnings last quarter. These expenses totaled $14.2 billion, rising 7% year-over-year, driven by the incremental FDIC special assessment charge of $251 million, and restructuring and repositioning costs totaling almost $500 million.
Under Fraser’s leadership, Citi embarked on its largest reorganization in almost two decades, splitting the bank into five interconnected business units with heads of each business reporting directly to Fraser. The changes — which were completed last month — are aimed at cutting costs and simplifying the bank’s structure, trimming at all layers of the organization.
As a result of these efforts, the bank ended up eliminating 7,000 positions, which is expected to generate $1.5 billion of annualized run rate expenses, Fraser told analysts in a call Friday. Overall, the simplification is slated to save $2.5 billion in cumulative annualized run rate in the medium term, Fraser said.
“Last month marked the end to the organizational simplification we announced in September,” Fraser said in the earnings report. “The result is a cleaner, simpler management structure that fully aligns to and facilitates our strategy.”
“With the organizational simplification behind us and a good quarter under our belt, we have started this critical year on the right foot,” she added.
Citi stock was down about 2.5% in midday trading Friday. It’s up about 11% so far this year.
The bank reported a loss of $1.84 billion in the fourth quarter of 2023, booking a $780 million charge directly related to its structural changes. It warned that it could take another $1 billion charge in 2024 to cover severance and other expenses.
Many investors have responded positively to the changes, as evidenced by Citi’s stock popping almost 15% year-to-date — and a thumbs-up from the Oracle of Omaha, Warren Buffett.
Wells Fargo closes another fake accounts scandal chapter
Wells Fargo reported a decline in its net income to $4.62 billion ($1.20 per share), from $4.99 billion ($1.23 per share) during the same period last year. It still blew past analysts’ expectations, who had projected an EPS of $1.06.
The bank saw $20.86 billion in revenues, a less than 1% year-over-year increase, but one that beat analysts’ expected $20.2 billion, according to estimates compiled by FactSet. Wells Fargo also took a $284 million charge related to the FDIC special assessment.
Wells Fargo stock was about even in Friday midday trading. But it’s up more than 14% so far this year, outpacing the S&P 500’s 9% growth.
A major contributor to newfound confidence in the bank was the Office of the Comptroller of the Currency’s (OCC) decision in February to terminate a consent order issued in September 2016 regarding sales practices misconduct at the bank. Regulators concluded that the bank had sufficiently remedied its culture after a series of years-long scandals.
“The closure of this order is an important step forward and is confirmation that we operate much differently today around sales practices,” CEO Charles Scharf said in the earnings report. “It is the sixth enforcement action against Wells Fargo that our regulators have closed since 2019. The remaining risk and control work continues to be our top priority and we will not be satisfied until all work is complete.”
The order was related to the so-called fake accounts scandal — the revelation that Wells Fargo employees had been opening fake accounts on behalf of customers for years in order to inflate sales figures. That prompted years of regulatory scrutiny and leadership turnover at the bank.
In a call with analysts following the earnings release Friday, Scharf warned that new regulatory hurdles may still continue to arise for the bank, given its checkered history.
“Regulatory pressures on banks with long-standing issues such as ours is high, and until we complete our work and until it is validated by regulators, we remain at risk of further regulatory actions,” Scharf said. “Additionally, as we implement heightened controls and oversight, new issues could be found and these may result in regulatory actions.”