Before the market opened on Jan. 14, JPMorgan Chase & Co. (JPM, Financial), Citigroup Inc. (C, Financial) and Wells Fargo & Co. (WFC, Financial) reported their earnings for the quarter and full year ended Dec. 31, 2019.
Among the three U.S.-based large-cap banks, which offer a range of financial services such as consumer and corporate banking, wealth and investment management and more, JPMorgan and Citigroup beat earnings estimates while Wells Fargo lagged. However, all three banks showed similar drivers of revenue, which help paint a larger picture of the U.S. banking sector as a whole.
JPMorgan
JPMorgan came out with earnings per share of $2.57 on $29.2 billion in revenue for the quarter, while net income was $8.5 billion. These numbers surpassed Wall Street estimates, which predicted earnings per share of $2.32 and revenue of 27.26 billion. The bank reported record full-year net income of $36.4 billion, or $10.72 per share.
The positive results were driven by an 86% increase in fixed-income trading, a 15% increase in equity trading, a 6% increase in investment banking and an 8% increase in asset and wealth management. Meanwhile, consumer and community banking was up 3%, counteracted by a 3% loss in commercial banking.
As of Jan. 14, JPMorgan has a market cap of $438.83 billion, a price-earnings ratio of 13.76, a three-year revenue growth rate of 8.8%, a three-year earnings per share without non-recurring items growth rate of 14.5% and a cash-debt ratio of 0.74.
While the biggest drivers of revenue came from trading and investments, the bank saw a 2% loss in interest income due to lower rates. According to CEO Jamie Dimon, this was why banking saw no significant gains despite growth in deposits:
“In Consumer & Community Banking, average deposits grew at 5%, somewhat aided by lower short-term rates, and we continued to add customers in new and existing markets, and deepen our customer relationships by offering great deposit, investment and lending products.”
Citigroup
For its 2019 fourth quarter, Citigroup reported revenue of $18.38 billion on net income of $5 billion and earnings per share of $1.90. Analysts expected to see earnings per share of $1.82 and revenue of $17.70 billion. For the full year, Citigroup saw a 1.92% increase in revenue to $74.3 billion.
Citigroup saw strong growth in the following sectors: fixed-income trading (up 49%), investment banking (up 6%), treasury and trade solutions (up 2%) and global consumer banking (up 4% currency-adjusted). Retail banking suffered a 4% decline, while equity trading fell 23%. CEO Michael Corbat commented:
“Our earnings of $5 billion for the fourth quarter marked a strong finish to 2019. Our full year Return on Tangible Common Equity of over 12% exceeded our target… Investment Banking continued to gain share and, despite a lower rate environment, Treasury and Trade Solutions grew revenue as we work to ensure our global network remains indispensable to our clients.”
As of Jan. 14, Citigroup has a market cap of $179.79 billion, a price-earnings ratio of 10.91, a three-year revenue growth rate of 4.8%, a three-year EPS without NRI growth rate of 7.3% and a cash-debt ratio of 0.79.
Like JPMorgan, Citigroup saw increases in income from its trading and wealth management services, while gains in deposits were tempered by losses from lower interest rates, especially in corporate banking.
Wells Fargo
Wall Street predicted Wells Fargo’s fourth-quarter revenue to hit $19.81 billion and its earnings per share to reach $1.12. However, the bank ended the quarter with earnings per share of 93 cents on revenue of $19.86 billion, and its net income was $2.87 billion compared to $6.06 billion in the prior-year quarter. For the full year, the bank posted net income of $19.5 billion and diluted earnings per share of $4.05.
Wells Fargo’s underperformance compared to analyst expectations came largely from the ongoing negative effects of the retail sales scandal in 2016, in which staff created fake consumer accounts in order to reach their sales goals. Legal expenses cost the bank $1.5 million during the quarter, bringing diluted earnings per share to 60 cents (33 cents deducted for legal expenses). “Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” CEO and President Charlie Scharf said in the fourth-quarter earnings report.
Net interest income declined by $425 million, or 3.65%, due to the lower interest rate environment. Like its peers, Wells Fargo saw some growth in its investment management products, but it saw some declines as well. The bank sold its Institutional Retirement and Trust (IRT) business to Principal Financial Group (PFG, Financial) for $1.2 billion in the third quarter of 2019, which reduced net income for its wealth and investment management division by 80% compared to the previous quarter and by 63% for the prior-year quarter. However, it managed to grab a larger share of the U.S. investment banking market, increasing to a 3.7% market share compared to 3.2% at the end of 2018. In the earnings letter, Chief Financial Officer John Shrewsberry said:
“Our net interest income declined in the fourth quarter driven predominantly by the impact of the lower interest rate environment. In addition, while we are spending what is necessary in order to improve risk management, our other expenses were too high and becoming more efficient remains a top priority. However, we continued to have positive business trends with both loans and deposits growing from the third quarter and a year ago.”
As of Jan. 14, Wells Fargo has a market cap of $209.9 billion, a price-earnings ratio of 10.7%, a three-year revenue growth rate of 3.5%, a three-year EPS without NRI growth rate of 1.3% and a cash-debt ratio of 0.61.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation.
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