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Big Banks Q3 Earnings Scorecard: What Investors Should Know

Swayta Shah

The four big banks — JPMorgan JPM, Citigroup C, Bank of America BAC and Wells Fargo WFC — released third-quarter 2019 results in mid-October. In this article, we look into the results of these Wall Street giants and check out their guidance.

Except Wells Fargo, the other three banks beat the Zacks Consensus Estimate. Wells Fargo’s performance was hurt by the costs related the ongoing sales scandal.

Shares of three of these big banks rallied following the earnings release as better-than-expected top-line performance and fairly positive management commentary led to bullish investor sentiments.

The common themes that favorably influenced big banks’ third-quarter results were strength in consumer business and diversified operations. Additionally, decent loan balance, and efforts by banks to upgrade technology and expand in new regions lent support.

However, two back-to-back interest rate cuts by the Federal Reserve (in July and September) put net interest margin (NIM) under pressure. Also, rise in credit costs was an undermining factor.

JPMorgan

Earnings & Revenues: The company reported third-quarter earnings of $2.68 per share, topping the Zacks Consensus Estimate of $2.44 and the year-ago figure of $2.34. This was primarily driven by higher mortgage banking fees, and impressive bond trading and underwriting business performance.

Total revenues of the New York-based largest U.S. bank were $296.3 billion, up 8% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $28.4 billion.

Margin: Interest rate spread was 2.09%, down 16 basis points (bps).

Loan & Deposit Balance: As of Sep 30, 2019, loans totaled $945.2 billion, down 1% year over year. On the other hand, deposits grew 5% to $1.53 trillion as of the same date.

Credit Quality: Provision for credit losses was $1.5 billion, surging 60% from the prior-year quarter. Further, non-performing assets increased 6% to $5.3 billion. Also, net charge-offs jumped 33% to $1.4 billion.

Guidance: JPMorgan anticipates net interest income (NII) to be around $57.5 billion for 2019. This is based on a number of factors, including lower long end rates and expectations of up to three rate cuts this year.

Share Price Impact: Shares of this Zacks Rank #3 (Hold) company rallied 2.8% and hit an all-time high as the bank reported better-than-expected quarterly performance amid a tough backdrop.

Citigroup

Earnings & Revenues: The company’s third-quarter adjusted earnings per share of $1.98 beat the Zacks Consensus Estimate of $1.96. Also, it was up 20% year over year. The outperformance was largely driven by strength in consumer banking and investment banking businesses, manageable expense level and loan growth.

Total revenues of the New York-based big bank were $18.6 billion, up 1% year over year. The figure matched the consensus estimate.

Margin: NIM declined 14 bps to 2.56%.

Loan & Deposit Balance: As of Sep 30, 2019, total loans grew 2% year over year to $691.7 billion. Deposits grew 8% to $1.09 trillion.

Credit Quality: Citigroup’s costs of credit were up 6% year over year to $2.1 billion. The rise largely underlines elevated net credit losses of $2 billion and a credit reserve build of $158 million, and provision for benefits and claims of $17 million.

However, total non-accrual assets fell 6% year over year to $3.8 billion for this Zacks Rank #3 company.

Guidance: For 2019, Citigroup expects modest year-over-year revenue growth, attributed to 2-3% rise in NII and more stable trends in non-interest revenues.

Share Price Impact: The company's shares declined 1.1% following the release of third-quarter results.

Bank of America

Earnings & Revenues: The company’s earnings per share of 56 cents surpassed the Zacks Consensus Estimate of 50 cents, driven by improved capital markets performance. However, it declined 15% year over year. Results included merchant services joint venture impairment charges of $2.1 million. Excluding this, adjusted earnings were 75 cents per share.

The Charlotte, NC-based bank’s total revenues were $22.8 billion, up slightly year over year and beat the Zacks Consensus Estimate of $22.2 billion.

Margin: Net interest yield was 2.41%, down 4 bps year over year.

Loan & Deposit Balance: As of Sep 30, 2019, net loans were $963.5 billion, up 5% year over year. Also, deposits grew 4% to $1.39 trillion as of the same date.

Credit Quality: Provision for credit losses for this Zacks Rank #3 company increased 9% on a year-over-year basis to $779 million. However, net charge-offs declined 13% to $811 million. Further, as of Sep 30, 2019, ratio of non-performing assets ratio was 0.39%, down 20 bps.

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Guidance: For 2019, Bank of America anticipates NII to be up nearly 1% year over year.

Additionally, 2019 operating expenses are expected to be slightly lower than reclassified 2018 level (on adjusted basis).

Share Price Impact: The company's shares rose 1.8% following the earnings release as prudent cost management despite new branch openings and technology investments, and market defying investment banking performance cheered investors.

Wells Fargo

Earnings & Revenues: The company’s third-quarter earnings of 92 cents per share missed the Zacks Consensus Estimate of $1.15 and came in below the prior-year quarter earnings of $1.13.  Results for the quarter included certain non-recurring items.

Total revenues at this San Francisco-based bank were $22 billion, up marginally from $21.9 billion in the year-ago quarter. Further, the figure beat the Zacks Consensus Estimate of $21.1 billion.

Margin: NIM shrunk 28 bps year over year to 2.66%.

Loan & Deposit Balance: As of Sep 30, 2019, total loans were $954.9 billion, up 1% from the prior-year quarter. Total deposits were $1.31 trillion, up 3%.

Credit Quality: Provision for credit losses for this Zacks Rank #5 (Strong Sell) stock was $695 million, 20% higher from the prior-year quarter.

However, allowance for credit losses, including the allowance for unfunded commitments, totaled $10.6 billion as of Sep 30, 2019, down 4% year over year. Also, net charge-offs were $645 million, down 5%.

Guidance: For 2019, management expects NII to be down 6% year over year due to a number of factors like loan growth, pricing spreads, the level of rates and the slope of the yield curve.

Also, operating expenses are likely to be in the top end of $52-$53 billion range. This excludes annual operating losses in excess of $600 million and deferred compensation expense.

Share Price Impact: The company’s shares rose nearly 1% following the announcement of third-quarter results.

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Citigroup Inc. (C) : Free Stock Analysis Report
 
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