Citigroup earnings shine as US bank shares fade further

Summary

Citigroup turned the tables on its giant rival in the third quarter.

JPMorgan buoyed by strong economy

JPMorgan, largest U.S. bank by assets, produced solid results, extending a run of consensus-beating earnings per share into a fourth quarter, making $2.34, compared to $2.25 expected, with total income of $8.4bn. Despite pressure on loan growth, as interest rates rise, JPMorgan’s core loans rose 7%. CEO Jamie Dimon acknowledged strong U.S. economic conditions helped, calling U.S. business confidence “extraordinary high,” and noting this could drive “a lot of growth for a while” despite headwinds.

Bank shares wobble

In an echo earnings from in recent quarters though, initial gains for bank shares reporting on Friday faded, including for Wells Fargo.  Its shares were about 1% higher near the close. An improving quarterly performance lifted the stock 2.5% earlier. Citi was also off highs though up 1.8%. JPMorgan had reversed into the red by 1.3%, leading a weaker ‘bulge bracket’, with Goldman and Morgan Stanley also lower. Broader jitters were partly to blame. The S&P 500 was set for its third-worst week of the year. But investors also questioned how comfortably banks reporting Friday made the cut as global economics stall and trade relations sour. JPM CEO Dimon was clear that disputes between Washington and key trading partners will “at some point in the future have negative effects”.

Citigroup shines

By favouring shares in Citi and Wells Fargo over JPM in the immediate aftermath of their earnings, investors signalled anticipation of those eventual impacts. The former pair made clearer progress in reducing expenses than their key rival, though in Wells ‘case, fines related to a still growing list of past misdemeanours hit headline results for an umpteenth quarter. Citi’s earnings showed the most outright strength. A 9% bond trading jump contrasted with JPM’s 10% slide. In Latin America, where the group is leading high growth by American banks, underlying constant-currency revenues jumped 8%. Citi also pushed operating expenses down 1%, whilst global consumer banking revenue rose 2%.

JPMorgan expenses jump

Citi’s cost progress consequently placed a 7.2% rise in JPMorgan’s non-interest expenses in sharper focus. Its expenses were just $10m less than the $15.7bn analysts were expecting. Such higher costs underscore rising spending across banks amid stiffening competition for new loans and deposits. Banks are focusing more on loans as trading economics remain challenging. JPMorgan’s markets and investor services saw another disappointing quarter, with a rise of just 1%.

Bank sentiment worsens

The first set of Big Bank earnings show their aggressive efforts to grow in consumer banking are running into rising costs. Trade tensions and tetchier Wall Street sentiment also take a toll. On Friday, JPMorgan’s shares re-joined its rivals’ in the red for the year. That points to dwindling expectations that banks can grow more quickly, even amid a muscular U.S. economy and rising rates. Bank of America, the U.S. bank with the second-largest balance sheet, reports on Monday. Goldman Sachs and Morgan Stanley earnings are scheduled for the day after.