Wells Fargo, Citi, and JPMorgan reported earnings. Here's what to know

Reality is beginning to settle in for three of the largest U.S. banks, at least according to their second-quarter results. While some of the truths reflected in earnings reports at JPMorgan Chase, Citigroup, and Wells Fargo gave the banks — and their investors — reason to rest easy, some potential storm clouds are still visible in the distance.

As expected, all three banks, which reported earnings before the bell on Friday, saw growth in profits and revenues compared with both last quarter and last year. These results were also in line with (or topped) Wall Street estimates.

Their stock, however, fell in morning trading on Friday. Net interest income (NII), the key measure of how much banks make from loans, took center stage again this quarter as both Wells Fargo and JPMorgan reported downbeat results related to the measure.

Meanwhile, at Citi, lower expenses and hotter-than-expected revenue and profits showed signs that chief executive Jane Fraser’s corporate overhaul might already be working.

These are some of the biggest takeaways from Friday’s earnings.

The fruits of Jane Fraser’s Citi transformation

Citi’s second-quarter earnings gave investors a glimpse into the early results of Fraser’s simplification plans that were completed in early 2024. The process resulted in thousands of layoffs and billions in additional expenses, which gave investors a chill over the last two quarters.

But in the bank’s operating expenses fell 2% year-over-year during the three months ended June 30, thanks to savings from the simplification, Citi reported. Expenses totaled $13.4 billion in the quarter.

“Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Fraser said in a statement accompanying the report, pointing to the “incredible amount of progress in simplification - both strategically and organizationally.”

Citi saw revenue of $20.1 billion for the second quarter, it reported Friday, up 4% from last year and matching Wall Street estimates, according to data compiled by FactSet. The New York-based bank saw $3.2 billion in net income, or $1.52 per share, well above analysts’ expected $1.39 per share.

While the quarterly results reflect strength in Citi’s Services division, Warren Kornfeld, senior vice president at Moody’s Ratings Financial Institutions Group, said Citi is still seeing challenges in growing its market share and reducing expenses in other business areas.

“The transformation and path to improved profitability still has a ways to go and will be met by successes as well as by setbacks,” Kornfeld told Quartz. “However, importantly for bond holders the bank continues to maintain, if not strengthen, their capital and liquidity levels.”

Shares of the third-largest U.S. bank popped up 2% in pre-market trading on Friday, but slipped more than 3% in morning trading. This year so far, Citi’s stock has climbed more than 20%.

Fraser said on a call with analysts that Citi continues to address risk and compliance issues as part of its ongoing transformation. The bank was hit with $136 million in fines by federal regulators on Wednesday for “insufficient progress” on fixing data management problems.

“This is not the old Citi putting on band-aids, this is new Citi tackling problems head on,” Fraser said.

Wells Fargo’s NII cliff

Wells Fargo stock plunged more than 7% on Friday morning, after it reported a 9% drop-off in NII.

The San Francisco-based bank saw $11.92 billion in NII during the second quarter, a figure that also fell short of the $12.12 billion expected by analysts, according to data compiled by FactSet.

Meanwhile, both its revenue and earnings per share beat Wall Street estimates. Revenue rose to $20.7 billion from $20.5 billion during the same quarter a year ago. Net income declined to $4.91 billion, or $1.33 per share, in the three months ended June 30 from $4.94 billion a year earlier.

“Wells Fargo’s second quarter results showcase growth in fee revenue while underscoring ongoing headwinds for net interest income and operating expenses highlighted in management’s negatively revised guidance for both,” Megan Fox, vice president and senior analyst of Moody’s Ratings Financial Institutions Group, said in a statement.

The bank said it expects NII to bottom out in the second half of 2024, once the Federal Reserve is expected to begin cutting interest rates.

Record profits — and some disappointments — at JPMorgan

JPMorgan’s second-quarter results were received with mixed feelings in the market.

Its stock fell 2% following its earnings report after reporting $22.9 billion in NII, a 4% yearly increase but short of Wall Street’s estimates. The bank also maintained the guidance it laid out at its annual Investor Day earlier this year. Of note, it kept NII projections at around $91 billion — a forecast that many disappointed investors were hoping the bank would raise this quarter.

Sky-high NII contributed to JPMorgan’s record 2023. But the metric is largely anticipated to dip — or, in banking speak, “normalize” — this year based on rate cuts anticipated to be carried out by the central bank later this year.

“I think it’s definitely too early to be calling the end of the over-earning narrative or the normalization narrative,” chief financial officer Jeremy Barnum said in a call with analysts Friday morning. The bank has largely avoided speculating about Federal Open Market Committee decisions.

Provisions for loan losses and expenses both rose more than expected.

Other than that, however, JPMorgan reported strong inflows that beat analyst estimates. It saw record quarterly profit of $18.1 billion, or $6.12 per share in the second quarter — a 25% increase from $14.5 billion in the same period last year, the bank said in its second-quarter earnings report Friday. Wall Street analysts projected $17.3 billion in profit, or $5.88 earnings per share, according to FactSet.

It also reported $50.2 billion in revenue in the three months ended June 30, rising 22% year-over-year and cruising past the $42.23 billion expected by analysts. This was driven by investment banking fees, which rose 50%, and $7.9 billion gain from new Visa shares.