JPMorgan Chase led bank Friday morning with a major earnings beat following the March bank panic. PNC Financial Services posted mixed results but gave a soft revenue guidance. Wells Fargo and Citigroup topped forecasts early Friday, sending bank stocks surging.
Banks are expected to report strong net interest income and solid lending. But what will they forecast for these key metrics going forward, in the wake of recent turmoil?
Bank Earnings Estimates Trimmed
Wall Street is preparing for more pain ahead. Morgan Stanley analyst Betsy Graseck lowered 2023 and 2024 earnings per share estimates for large-cap banks by a median of 4% and 15%, respectively. Graseck expects accelerating deposit betas, or the change in Fed funds rate passed on to deposit rates, to drive down net interest margins, tighten lending standards and slow loan growth. High inflation and quantitative tightening create a "tough environment for banks," and it's "too early to go long" on large-cap banks as a group, Graseck wrote in an April 5 research note.
JPMorgan reduced price targets across large and regional banks Monday, citing a "litany of concerns" impacting the banking sector, including a potential recession, sustained high inflation, slowing consumer spending and likely increases to regulatory requirements and oversight. JPMorgan expects bank stocks to "remain choppy and pressured" as net interest income declines after net interest margins peaked and loan growth slows in the near-term. However, deposits at larger banks and regionals should hold up on a period-end basis as deposits flow from smaller banks.
Meanwhile, commercial bank deposits fell by $64.7 billion for the week ending March 29 to mark 10 consecutive weeks of declines, the Federal Reserve announced Friday as part of its delayed H.8 release. Smaller banks saw a slim inflow.
Smaller banks led a decline in lending activity, however.
Bank Crisis 'Not Yet Over,' JPMorgan CEO Dimon Says
JPMorgan Chase CEO Jamie Dimon wrote April 4 that the bank crisis "is not yet over," and there will be "repercussions from it for years to come," in his annual shareholder letter. America's largest bank plans to tweak operations to succeed in the current and future environment, Dimon wrote.
JPMorgan plans to reduce clients' nonoperating cash deposits and implement tighter management and execution strategies. That could include repricing some businesses, running off unprofitable products, changing business mixes and more-rigorously evaluating clients. Dimon also mentioned potentially trimming down JPMorgan's mortgage business and adding more low- or no-capital revenue streams, such as data and analytics services.
Option Trade On JPMorgan Earnings Could Return 28% By Week's End
JPMorgan Earnings
JPMorgan earnings bolted 55% to $4.10 per share on a 25% leap in revenue to a quarterly record $38.35 billion. For Friday's report, analysts expected earnings to jump 29% to $3.41 per share on 17.7% revenue growth to $36.13 billion.
Deposits were slightly higher at the end of the quarter compared to the end of 2022, up 2% to $2.37 trillion, as depositors poured into the well-capitalized giant. However, deposits decreased 7% year-over-year. Net interest income spiked 49% to $20.9 billion, and it raised its net interest income forecast to $81 billion for the full year.
JPMorgan decreased its provision for credit losses to $2.275 billion from $2.288 billion in Q4.
JPMorgan stock rallied 7.5% Friday following results. Shares are up more than 8% this week after rebounding from near the 200-day moving average Monday. JPM stock is up 3.4% so far this year.
Wells Fargo
Wells Fargo earnings catapulted nearly 40% to $1.23 per share, easily surpassing estimates of 28% growth. Revenue jumped 17% to $20.73 billion, marking the best top-line gain in years and beating forecasts of $20.1 billion.
The firm reported a 45% year-over-year boom in net interest income to $13.34 billion, slightly higher than forecasts. Deposits declined to $1.356 billion, down 2% from the end of the year and 7% from Q1 2022.
Wells Fargo increased its credit loss provisions by 26% from the end of the year to $1.2 billion.
During its earnings call, Wells Fargo reaffirmed its full-year net interest income guidance of 10% growth compared to 2022. However, the bank expects "a little bit of a stepdown" in Q2 from the first quarter.
WFC stock closed flat Friday after racing 4.3% premarket following results. Shares climbed 4.6% this week. The stock is well below its 50-day and 200-day lines. Wells Fargo shares have declined 4% so far this year.
Is JPMorgan Stock A Buy Right Now? Here's What Earnings, Charts Show
Citigroup
Citi earnings beat results after five straight quarters of declines, rising 8% to $2.19 per share. Analysts expected Citi to report a 18.8% earnings decline. Revenue rose 11.1% to $21.45 billion, topping forecasts of $20 billion.
Net interest income vaulted 23% to $13.35 billion, higher than the 18% jump projected by analysts. Deposits edged up to $1.147 billion in Q1 from $1.131 billion at the end of the year.
Citi increased its provisions for credit losses to $1.975 billion, up 7% from the end of the year. For Q1 2022, Citi only marked $755 million for its credit loss reserves.
Citi reiterated its 2023 outlook with its results. It projects full year revenue to range from $78 billion to $79 billion and net interest income of $45 billion.
C stock surged 4.8% after Friday's results, recovering 50-day and 200-day lines. Citi stock tumbled during the March bank panic, but is up roughly 9.6% year to date.
PNC Financial
PNC Financial fared better than other major regionals in March. It topped earnings estimates for its Friday morning results but missed on revenue.
Earnings leapt 23.2% to $3.98 per share while revenue rose 19.4% to $5.6 billion. FactSet guided a 14% jump in earnings to $3.67 per share on $5.62 billion in revenue.
Net interest income spiked 28% for the quarter to $3.6 billion, just under the FactSet forecast of $3.65 billion. Average deposits increased $1.3 billion to $436.2 billion while Wall Street expected a 4.3% slide to $433.5 billion. Average loans increased by $3.6 billion to $325.5 billion, just under estimates of $326.4 billion. Net interest margins dipped vs. Q4 amid higher funding costs. But PNC did cut its provision for credit losses.
PNC reported its provision for credit losses were $235 million for Q1, down from $408 million in the fourth quarter.
PNC guided a 3% revenue decline for Q2 compared to its first-quarter results. Analysts forecast revenue at $5.66 billion.
PNC stock edged up 0.3% Friday after rising 3.7% premarket following results. Shares are near recent two-year lows, tumbling 23% in 2023 as investors fled midsize banks.
Bank Earnings On Deck
Meanwhile, Bank of America, Goldman Sachs, Morgan Stanley and Charles Schwab all report next week.
So do PNC's superregional peers Comerica, U.S. Bancorp, Regions Financial, Truist Financial and KeyCorp, among others. So does Phoenix-based Western Alliance Bancorp.
First Republic Delays Earnings
First Republic Bank said late last week that it will report earnings on April 24. The battered San Francisco-based bank was originally scheduled to release results on April 14, along with JPMorgan, Citi, Wells and PNC. First Republic also suspended its quarterly dividend for preferred shares on April 6.
FRC stock is down roughly 90% over the past three months as First Republic received $100 billion in Fed loans and emergency deposits in March.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
