Steady as She Goes

Big Banks Continue Winning Streak, With Street at Least

JPMorgan, Citigroup and Wells Fargo beat analysts' estimates. Investors may be harder to satisfy.
Photographer: Bloomberg
At Closing, May 25th
110.66 USD
At Closing, May 25th
68.44 USD

U.S. bank earnings have kicked off without any tumult. Investors should be grateful for that increasing sense of dependability, though they appear to be looking for more.

JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and PNC Financial Services Group Inc. each delivered second-quarter results on Friday that topped Wall Street's expectations. On a measure of earnings per share, each bank has improved its respective streaks of beating or meeting analysts' estimates:

Reliability Factor

The U.S. banks that reported earnings on Friday lengthened their streak of surpassing or matching expectations which, to be fair, are managed by bank executives

Source: Bloomberg

*Out of the biggest banks reporting next week, Morgan Stanley commands the longest streak with six quarters of EPS beats in a row

The business of fixed-income trading, which has been a bright spot over the past year, has received outsize attention as it has fallen from grace after a long stretch of low volatility and tepid volumes, as expected. 1  Instead, its quarterly gyrations should be accepted by shareholders just as they withstand changes in the weather, according to JPMorgan's chairman and CEO Jamie Dimon. He has a point -- the diversity of JPMorgan combined with the size of its overall corporate and investment bank, which houses the fixed-income trading business, gives the bank a level of flexibility. 

That defense might not stick if JPMorgan's other businesses weren't performing, but they are. The bank posted quarterly net income of $7 billion in the three months ended June 30. That was its biggest haul ever, driven in part by a significant jump in net interest income, a direct result of the Federal Reserve's rate increases. Its efforts to bulk up asset and wealth management, where revenues have roughly doubled since 2006, have borne fruit. Net income for the business climbed 20 percent compared with results in the same period last year to a record $624 million. And for now, despite broad concerns about auto and credit card loans, there's no need to worry about widespread cracks. The bank's so-called net charge-off rate, which measures delinquencies, remains minimal. 

How They Fared

Three of the largest U.S. lenders reported second-quarter earnings on Friday. Each broadly beat expectations.

Source: Bloomberg, Company reports

Overall, there's little doubt that earnings per share at JPMorgan and its rivals will climb in coming quarters. While a lot of that growth can be attributed to capacious buybacks, it's heartening to see that other levers such as continued loan growth and the impact of higher interest rates are helping each bank justify their respectively rich valuations. 2 For JPMorgan specifically, its credit card business has gained momentum, illustrated by an uplift in both sales volume and card revenue. 

All Aboard

Bank stocks have rallied in part because the expected growth in their respective earnings per share, or EPS, in 2018 far exceeds that of the benchmark index

Source: UBS

Investors, however, didn't seem entirely satisfied, punishing bank shares in early trading. That could set an ominous tone for next week, when Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley round out earnings season for the big banks.

In the Red

Bank stocks tumbled on Friday in part because investors hoping for more sizable earnings beats were disappointed

Source: Bloomberg

While the same stability and dependability demonstrated on Friday should carry over, potential negative surprises can never be ruled out. One possible culprit is Goldman, if only because fixed-income, currencies and commodities trading accounts for roughly a quarter of the firm's revenues. The fact that the bank is reviewing the direction of its commodities business after a weak start to the year indicates that it understands that shareholders won't be able to continually swallow strings of future swings and misses quite as easily as they can accept the weather. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Friday's results, which included a narrow miss from JPMorgan in this area, all but confirmed that Wall Street's five biggest banks are collectively poised for their worst second quarter of trading dating back to 2012.

  2. To be sure, JPMorgan revised its core loan growth down to 8 percent from a previously guided 10 percent.

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Daniel Niemi at

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