Earnings season opened on Wall Street with a mixed verdict. Four of America’s biggest banks reported third-quarter numbers on Tuesday. Two clearly beat forecasts, one narrowly missed, and the market’s response was lukewarm.
Goldman Sachs and Citigroup delivered the standout results. JPMorgan Chase, usually the sector’s most reliable performer, fell short on earnings per share.
JPMorgan’s rare miss
JPMorgan reported net income of about $15.3 billion, or $5.57 a share, against analyst forecasts of around $5.90. Revenue grew 8% to about $50.2 billion.
The shortfall came from two places. Fixed-income trading revenue fell 4%, and the bank booked roughly $658 million in securities losses. Without those losses, earnings would have been about $5.75 a share. Equities trading revenue surged 49% and investment banking fees rose 14%, but they were not enough to close the gap. Credit costs came in at $2.7 billion.
Goldman sails past forecasts
Goldman Sachs produced the strongest numbers of the day. Earnings were $17.01 a share, well ahead of the roughly $12.86 analysts expected, on revenue of $18.68 billion. Net profit rose 29% to $5.29 billion.
Equities revenue jumped 72% and investment banking fees increased 21%, reflecting a busy quarter for dealmaking and market activity.
Citigroup’s best third quarter in a decade
Citigroup posted its highest third-quarter revenue in at least ten years, at about $23.8 billion. Net income rose 17% to $5.2 billion, or $2.85 a share, comfortably above the $2.65 analysts had pencilled in.
Its fixed-income desk brought in $4.4 billion, its best third quarter in the period reviewed. Chief executive Jane Fraser credited continued discipline and consistent execution of the bank’s strategy. Citi returned more than $4 billion to shareholders, including $3 billion in share buybacks, and ended the quarter with a core capital ratio of 12.8%.
Wells Fargo’s results were mixed.
Lending income and dealmaking
Net interest income, the difference between what banks earn on loans and pay on deposits, rose 13% at JPMorgan to $27.1 billion and 14% at Citigroup to $17 billion. Wells Fargo’s rose 5%. Goldman’s slipped 2% to $3.77 billion because its funding costs grew faster than its interest income.
Investment banking fees largely held up, with most firms meeting or beating their own guidance. On a quarter-on-quarter basis, though, fees declined, and Citi recorded the sharpest fall at 13%.
Why shares fell anyway
Despite the strong profits, shares of all four banks ended the day lower. Gina Martin Adams, chief market strategist at HB Wealth, told Reuters the results were somewhat disappointing for a market that had been expecting much more.
Expectations were part of the story. Bank stocks had recovered from a recent correction, and investors had priced in a good quarter. Concerns about higher interest rates and persistent inflation also weighed. Executives noted that sticky prices and higher rates could eventually put pressure on consumers.
The broader market was subdued on the day. The Dow Jones Industrial Average closed down 0.35%, the S&P 500 was almost flat and the Nasdaq Composite slipped 0.15%. Futures pointed to a small rebound on Wednesday ahead of the latest US inflation data.
What it means for the economy
Banks are often seen as an early window into the state of the economy, and this quarter’s message is nuanced. Trading and dealmaking are strong, which suggests capital markets are working well. Lending is growing, yet executives remain wary of consumers if inflation proves stubborn.
The coming days will bring results from Bank of America and Morgan Stanley, which should help show whether the strength in trading was broad-based or concentrated at a few firms. Bank of America also faces a $1.2 billion regulatory penalty announced on Tuesday, which it said will weigh on its third-quarter earnings.
