JPMorgan profit falls but beats estimates while Morgan Stanley misses

JPMorgan Chase & Co. shares rose Friday after the megabank beat analyst targets for third-quarter profit and revenue and said it would top forecasts for its net interest income in the coming quarter.

In a busy day for bank earnings, Wells Fargo & Co.
WFC,
+3.61%
fell short of earnings target but its stock rose as it beat revenue estimates.

Morgan Stanley
MS,
-3.12%
shares fell after it missed Wall Street’s targets for earnings and revenue.

Citigroup Inc.
C,
+2.51%
shares rose after beating its profit mark, although revenue fell 1% after breaking out the impact of divestitures.

Overall, banks benefited from higher interest rates and strong trading volumes, but investment banking deal activity fell sharply. Banks also channeled more capital into reserves and away from their collective bottom lines to prepare for a potential economic downturn.

As the largest bank in the U.S. and a bellwether for the sector, JPMorgan Chase
JPM,
+3.54%
turned in a “solid performance” in the latest quarter, in the words of Chief Executive Jamie Dimon.

The bank said it expects to meet its capital requirements under the international Basel III banking guidelines and resume stock buybacks early in 2023.

“In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” Dimon said. “However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”

Dimon said the bank remains “prepared for bad outcomes” so it can continue to operate even in the most challenging times.

Dimon’s prepared statement comes a day after the oft-quoted CEO said the U.S. consumer sector remains strong currently, but inflation will start weighing on people by 2023.

Also Read: JPMorgan CEO Dimon says inflation hasn’t dampened consumer spending yet but give it time

JPMorgan Chase’s stock rose 2.6% on Friday after it said its third-quarter net income fell 16.7% to $9.74 billion, or $3.12 a share, from $11.69 billion, or $3.74 a share, in the year-ago quarter.

Third-quarter revenue at the megabank rose to $32.72 billion from $29.65 billion in the year-ago quarter.

Wall Street analysts expected JPMorgan Chase to earn $2.90 a share on revenue of $32.12 billion, according to estimated compiled by FactSet. T

The bank said a net credit reserve build of $808 million ate into its net income for the latest quarter, compared with a net reserve release of $2.1 billion in the prior year.

Net interest income climbed 34% to $17.6 billion and net interest income excluding its Markets unit rose 51% over the year-ago period to $16.9 billion on higher interest rates.

JPMorgan Chase’s total assets under management fell 13% to $2.6 trillion in the face of losses in the equities market and difficult conditions in the bond market.

Looking ahead, JPMorgan Chase said it expects fourth-quarter net interest income of about $19 billion, ahead of the $18.2 billion analyst estimate.

Oppenheimer analyst Chris Kotowski said calling JPMorgan’s results a blow-out quarter “would be an understatement” because “the reported numbers don’t do justice to the underlying strength.”

The bank’s trading revenue of $6.8 billion beat estimates, plus its net interest income was up 16% over the previous quarter to $17.6 billion, about $1.3 billion ahead of expectations, while expenses were up just 2.3% over the previous quarter.

Octavio Marenzi, CEO of management consultant company Opimas said the bank’s results were “surprisingly solid” and if you strip away its payments for loan reserves, its profit is basically unchanged.

“Individual lines of business, such as investment banking and mortgages did predictably badly, but this was more than compensated for by strength in other areas of lending and in trading,” Marenzi said.

Prior to Friday’s trades, shares of JPMorgan Chase have lost 30.9% in 2022 compared with a 17.3% drop by the Dow Jones Industrial Average
DJIA,
-0.18%
and a 23.0% loss by the S&P 500
SPX,
-0.82%.

Wells Fargo misses profit target but share rise

Wells Fargo & Co. shares advanced 3.1% after the bank posted net income of $3.528 billion, or 85 cents a share, for the quarter to end September, down from $5.122 billion, or $1.17 a share, in the year-earlier quarter.

The megabank fell short of the earnings-per-share target of $1.09 a share.

Wells Fargo’s revenue rose to $19.505 billion from $18.834 billion a year ago, ahead of the $18.775 billion FactSet consensus.

Chief Executive Charlie Scharf said performance was “significantly impacted” by $2 billion, or 45 cents a share, in operating losses “related to litigation, customer remediation, and regulatory matters primarily related to a variety of historical matters.”

However, the bank is seeing historically low delinquencies and high payment rates, and the “timing of deterioration in those measures due to high inflation remains unclear. “

The bank set aside $784 million in provisions for loan losses, after reducing them by $1.395 billion a year ago.

Net interest income rose 36%, while noninterest income fell 25%, as mortgage banking income declined.

Citi analyst Keith Horowitz said Wells Fargo turned in a “good” quarter overall, although larger-than-expected one-time charges and a reserve build reduced profits. But Wells Fargo also raised its outlook for net interest income “and we still see upside to 2023 consensus,” Horowitz said.

Shares of Wells Fargo have declined 12% in the year to date, prior to Friday’s trades.

Morgan Stanley shares fall on results

Morgan Stanley fell 3.1% after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.

Morgan Stanley said its third-quarter net income fell to $2.49 billion, or $1.47 per share, from net income of $3.7 billion, or $1.98 per share in the year-ago quarter.

Third-quarter revenue dropped to $12.99 billion from $14.75 billion.

Wall Street analysts were looking for earnings of $1.52 a share and revenue of $13.29 billion, according to FactSet data.

“Firm performance was resilient and balanced in an uncertain and difficult environment, delivering a 15% return on tangible common equity,” said CEO James Gorman. “Wealth Management added an additional $65 billion in net new assets and produced a pre-tax margin of 28%, excluding integration-related expenses, demonstrating scale and stability despite declining asset values.”

Morgan Stanley shares have lost 19.2% in 2022 as of Thursday’s close.

Citi beats targets but shares lose ground

Citigroup shares move higher by 1.3% after the bank posted stronger-than-expected profit, but revenue fell 1% after breaking out divestiture-related impacts, as growth in net interest income was more than offset by lower non-interest revenue.

Citi said its third-quarter net income dropped to $3.5 billion, or $1.63 per share, from $4.6 billion, or $2.15 a share, in the year-ago quarter.

Excluding divestiture-related impacts, earnings were $1.50 a share.

Total revenue increased to $18.5 billion from $17.4 billion.

Analysts were looking for earnings of $1.42 a share and revenue of $18.26 billion for Citigroup, according to a FactSet survey.

Citi said it continues to shrink its operations in Russia, and expects to end nearly all of the institutional banking services offered in the country next quarter. “To be clear, our intention is to wind down our presence in this country,” Chief Executive Jane Fraser said.

Citigroup also said it continues to scale back its business in Russia . It will end “nearly all of the institutional banking services we offer” in the next quarter as it works to wind down its presence there.

Shares of Citigroup have dropped 28.9% in 2022, as of Thursday’s close.

Also Read: JPMorgan and Goldman are still top dogs in investment banking but business shrinks significantly in 2022