Major banks and financial institutions kicked off their earnings reports in a flurry Friday morning. Wells Fargo, JPMorgan Chase, Morgan Stanley, Citigroup and PNC Financial Services Group are all released quarterly results. Performance for the period was mixed despite big increases in interest revenue.
"Capital markets did not improve in Q3 2022, with no sign of improvement ahead, significantly reducing investment banking, CFRA Research director Kenneth Leon noted in his Q3 banking preview. Loan volume "will weaken into a 2023 recession," despite expectations that rising interest rates would drive increased net interest income.
Banks are facing greater liquidity constraints and are having to fund loan growth with higher cost deposits, debt and securities portfolio runoffs, Morgan Stanley analyst Betsy Graseck noted last week. Rapidly-rising interest rates and higher capital requirements are leading to an accelerated upturn in the credit cycle — heading into a period when loans are more costly and difficult to obtain. That puts financial institutions with excess capital, liquidity and positive operating leverage in the best position long-term, she says.
Leon predicts fourth-quarter consensus estimates and 2023 outlooks will lower further. "Equity analysts are likely to reduce target prices and EPS estimates as optimism about future bank performance declines," he wrote. CFRA sees 2022 and 2022 "saddled with sluggish banking activity," driven by high inflation, Fed rate increases and lower consumer demand.
Wells Fargo Earnings
Expectations: Wells Fargo's adjusted earnings were seen sliding 3.5% to $1.13 per share on a slight revenue drop to $18.77 billion.
Results: Wells Fargo's quarterly earnings fell 27% to 85 cents per share but revenue rose 3.7% to $19.5 billion.
The company said its net interest income spiked 36% due to higher interest rates, loan balances and lower mortgage-backed securities amortization. While noninterest income fell 25% on declines in mortgage banking, venture capital and investment banking income.
Wells Fargo noted $2 billion in operating losses related to litigation, customer remediation and regulatory matters.
WFC stock rose about 1.9% on Friday after climbing more than 4.6% on Thursday. Shares have fallen 15.5% so far this year.
JPMorgan Chase Earnings
Expectations: Watchers expected JPMorgan's earnings to drop 22% to $2.90 per share, while revenue climbing 8.4% to $32.13 billion.
Results: JPMorgan's earnings fell 16.6% to $3.12 per share, and revenue was up 10.3% to $32.7 billion.
JPMorgan added $808 million to its credit reserves during the quarter, driving lower net income, compared to last year when it released $2.1 billion from its coffers. Net interest income was up 34% thanks to higher interest rates. But noninterest revenue fell 8% on lower investment banking fees, losses in corporate securities investments and lower production in home lending.
JPM stock closed up 1.7% on Friday after gaining 5.6% on Thursday. It's down nearly 34.6% year-to-date.
Morgan Stanley Earnings
Expectations: Wall Street forecast a 25.5% drop in earnings to $1.52 per share. And a 10% revenue decline to $13.27 billion.
Results: Morgan Stanley's adjusted earnings fell 25% to $1.53 per share while revenue dropped 12% to $12.98 billion.
Morgan Stanley's investment banking revenue and investment management revenue tumbled 55% and 20%, respectively, as capital markets action slowed.
MS stock fell more than 5% during Friday trading, reversing its 3.6% growth from Thursday. Morgan Stanley shares are down about 22% so far in 2022.
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Citi Earnings
Expectations: Citi's adjusted earnings a were seen tumbling 33% to $1.44 per share on a 6.5% increase in revenue to $18.27 billion.
Results: Citi earnings fell 24% to $1.63 per share while revenue grew 7.8% to $18.5 billion.
Citi's profit decline was driven by increases in its loan reserves. Citi set aside an additional $370 million for credit losses during the quarter, bringing the total to $1.37 billion. Last year it released more than $1 billion. Meanwhile, Citi's personal banking revenue rose 10% to $4.33 billion.
C stock edged up 0.65% by Friday's close after initially rising more than 2% premarket and gaining 5.2% in Thursday's trading action. But its price has shed 32.4% this year.
PNC Earnings
Expectations: Analysts predicted PNC's adjusted earnings would jump 13% to $3.73 per share on a 4% revenue increase to $5.4 billion.
Results: Earnings climbed 14.5% to $3.78 per share and revenue grew 6.7% to $5.55 billion for the quarter.
Net interest income jumped 14% to $3.5 billion, driven by higher yields on assets and loan growth, but partially offset by higher funding costs. While noninterest income rose modestly to $2.1 billion. PNC also increased its provisions for credit losses to $241 million from $36 million last year, as it sees a weaker economic outlook.
PNC stock ended down 2.14% Friday after advancing 2.1% before the opening bell and climbing 4.7% Thursday. Shares have tumbled 27.1% year-to-date.
You can follow Harrison Miller for more news and stock updates on Twitter @IBD_Harrison.
