The second quarter earnings season is underway and the July 17 week included earnings reports from the majority of the large banks. Banks reporting earnings from the Dow Jones Industrial Average included JPMorgan Chase and Goldman Sachs. Additionally, Bank of America, Wells Fargo and Citigroup also reported earnings during the week.
Below is a summary of the results for these large banks.
JPMorgan Chase (JPM, Financial)
JPMorgan Chase reported revenue of $24.5 billion, net income of $6.3 billion and earnings per share of $1.54. Revenue was on target with analysts’ expectations and earnings per share beat estimates by $0.10. The bank continued to generate the majority of its revenue from Consumer & Community Banking and the Corporate & Investment Bank division. Loan growth in Consumer & Community Banking helped the segment to improve revenue from the previous quarter by 3%. In the Corporate & Investment Bank division, revenue was down 9% from the previous quarter primarily due to lower fixed income trading revenue from volatility in Europe’s credit markets.
In the day following the company’s earnings announcement, the stock was up 1.51% to close at $69.04 on July 14. Year-to-date through July 17 the stock is up 10.59%.
Goldman Sachs reported revenue of $9.07 billion, net income of $2.3 billion and earnings per share of $4.75. The quarter’s results beat analysts’ consensus revenue and earnings per share estimates. Revenue was estimated to be $8.8 billion and earnings per share was targeted at $3.89. The firm generated the majority of its revenue for the quarter from Institutional Client Services, which accounted for $3.6 billion or 40% of total revenue. In Institutional Client Services, fixed income, currency and commodities trading was down 28% from the comparable quarter while equities trading was up 24%. Similar effects were seen in trading revenue at Goldman Sachs as volatility in Europe’s debt markets continued. In Institutional Client Services, overall revenue was down 6% from the comparable quarter.
In the bank’s other business segments, Investment Banking and Investment Management revenue posted the strongest comparable quarter revenue gains at 13% and 14%, respectively. In Investing and Lending, revenue was down 13% from the comparable quarter and 8% from the previous quarter. Overall, net revenue for the firm was down 1% from the comparable quarter and down 15% from the first quarter of 2015.
In the day following the firm’s earnings announcement, the stock price closed at $211.18 down 0.92%. Year-to-date through July 17 the stock has gained 9.61%.
Bank of America (BAC, Financial)
Bank of America reported revenue of $22.35 billion with net income of $5.3 billion and earnings per share of $0.45. Revenue was $1.02 billion higher than analysts’ consensus earnings estimate. Earnings per share also beat analysts’ consensus estimate of $0.36.
Consumer Banking continued to dominate revenue for Bank of America accounting for 34% at $7.5 billion. Consumer Banking revenue was down only slightly from the second quarter of 2014, falling 1%. The firm’s other major revenue contributing business categories include Global Wealth and Investment Management, Global Banking and Global Markets. In Global Wealth and Investment Management, revenue was down 0.35% from the second quarter of 2014 at $4.6 billion. In Global Banking, revenue was down 7% from the comparable quarter to $4.1 billion. In Global Markets revenue was also down 7% from the comparable quarter at $4.3 billion.
In the day following the earnings announcement, the stock was up 3.39% to $17.68. Year-to-date through July 17, the stock is up 1.12%.
Wells Fargo reported revenue of $21.3 billion, net income of $5.7 billion and earnings per share of $1.03. The bank’s earnings results missed analysts’ expectations slightly on revenue; however, it met expectations for earnings per share. Reported revenue was slightly below analysts’ expectations of $20.93 billion.
The bank generated the majority of its income from Community Banking in the second quarter of 2015 at 59%. Community Banking income was down slightly from the comparable quarter for a 2% decrease at $3.36 billion. Wholesale Banking generated 35% of the firm’s income for the quarter at $2.01 billion, up 3% from the comparable quarter and 12% from the first quarter. The firm’s final business segment, Wealth, Brokerage and Retirement, reported income of $602 million, up 11% from the comparable quarter and 7% from the first quarter. Overall, net income was basically unchanged at $5.72 billion, down 0.12% from the second quarter of 2014 and 1.46% from the first quarter of 2015.
In the day following the company’s earnings announcement, the stock closed at $57.25 up 0.93%. Year-to-date through July 17 the stock is up 5.69%.
Citigroup reported second quarter 2015 revenue of $19.16 billion, net income of $4.45 billion and earnings per share of $1.45. Revenue beat analysts’ average estimate by $40 million and earnings per share beat by $0.11.
The firm’s revenue is primarily derived from two main business segments: Global Consumer Banking and the firm’s Institutional Clients Group. In comparison to the second quarter of 2014, the Institutional Clients Group posted the strongest revenue growth rate with an increase of 6% and total revenue for the quarter of $8.88 billion. Global Consumer Banking was down 4% from the comparable quarter at $8.55 billion. Similar trends were seen in Citigroup’s earnings results with loan growth continuing to fuel Global Consumer Banking and trading revenue lower in the Institutional Client Group from debt risks in Europe’s credit markets.
In the day following the announcement, the stock was up 3.74% to $58.59. Year-to-date the stock is up 8.58% through July 17.
Factors Influencing the Banking Sector
Overall, one important factor affecting the outlook for the banking sector is the timing of an interest rate increase by the Federal Reserve. An interest rate increase would begin to significantly boost earnings for banks as a large portion of earnings are derived from interest income. On Wednesday and Thursday of the July 17 week, Chairman Janet Yellen gave her semi-annual monetary report to the House Financial Services Committee. In her comments she noted economic conditions would likely warrant an increase to the federal funds rate by the end of the year.
On Friday, July 17, the Federal Reserve also released technical changes to its capital adequacy stress test for U.S. banks. In the modified stress test, banks would be given another year to meet the Federal Reserve’s new leverage ratio requirement. The U.S. banking sector has been hard pressed to incorporate new regulations that tighten standards for lending and capital adequacy. The additional time to complete the new leverage ratio threshold could help reduce expenses required in instituting plans for new regulatory requirements.
For the July 17 week, the financial sector overall was up 3.04%. U.S. financial market indexes were also higher. The Dow Jones Industrial Average was up 1.84% and the S&P 500 also gained 2.41%.
