Navigating Stormy Waters: Big Banks' Q2 Results and the Path Ahead

The second quarter of 2025 brought a mix of resilience and caution to the U.S. banking sector. JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) all reported earnings amid tariff-driven inflation, geopolitical volatility, and regulatory shifts. While their results highlighted strengths in trading revenues and capital returns, investors must weigh these positives against lingering macro risks, including slowing retail sales and housing stagnation. This analysis evaluates how each bank's Q2 performance stacks up against valuation metrics, credit quality, and management guidance—and why diversification and balance sheet strength will determine winners in this uncertain environment.

Key Themes from Q2 Earnings

All three banks cited Trump's trade tariffs and Fed policy uncertainty as headwinds. Yet, their ability to navigate these challenges differed. Trading revenues surged as market volatility rose, offsetting declines in traditional lending. Meanwhile, stress test approvals allowed all three to boost dividends and buybacks, supporting share prices. However, elevated provisions for credit losses and tepid loan growth underscored cautious expectations about economic conditions.

Bank-by-Bank Breakdown

JPMorgan Chase: Leadership in a Divided Landscape

• Performance: Revenue fell 42% to $44.04 billion (due to a one-time Visa gain in 2024), but net income held steady at $15.5B.
• Strengths:
• Trading desks thrived in volatile markets, with equity and fixed-income revenues up mid-to-high single digits.
• Capital returns surged: a $50B buyback and $1.50/share dividend.
• Risks:
• Provisions for credit losses rose 17% to $3.08B, reflecting concerns over prolonged high rates.
• Student loan demand and credit card income offset declines in corporate lending.
• Valuation:
• Forward P/E: 15.06x (vs. 14.58x industry average).
• Price-to-tangible book: 2.70x (historically high, but justified by ROTCE of 16.88%).
• Analyst Take: Bulls argue its scale and diversified revenue streams (trading, advisory) justify the premium. Bears note the stock's sensitivity to macro risks like housing and retail weakness.

Wells Fargo: Lagging but Positioning for Recovery

• Performance: EPS of $1.40 beat estimates, but revenue flat at $20.7B. Mortgage and investment banking fees rose, but credit card growth slowed.
• Strengths:
• NPA levels dropped 3.9% to $8.3B, signaling improved asset quality.
• Lifted by Fed's removal of its asset cap, enabling balance sheet growth.
• Weaknesses:
• Trading and corporate lending lagged peers, with IB revenue up only 12.5%.
• Retail sentiment remains bearish, with shares up only 13% YTD vs. industry gains of 20.2%.
• Valuation:
• Forward P/E: 13.21x (undervalued vs. peers).
• Tangible book multiple: ~1.5x, reflecting its smaller scale and lingering operational scars.
• Analyst Take: A bargain for long-term investors if it can execute cost cuts (20 branches closed, 1,000 jobs cut) and regain lending momentum. Near-term risks include its reliance on stable housing markets.

Citigroup: Growth Amid Restructuring Pain

• Performance: Revenue rose 4% to $20.9B, driven by investment banking and markets. Net income grew 6.6% to $1.62B.
• Strengths:
• Cross-border trading and M&A fees surged as geopolitical tensions boosted dealmaking.
• Dividend raised 7.1% to $0.60/share, with a $20B buyback.
• Weaknesses:
• Credit reserves jumped 53% to $3.46B, signaling concerns over emerging market exposures.
• Restructuring costs (20,000 job cuts by 2026) may dampen near-term profits.
• Valuation:
• P/E: 10.38x (deep discount vs. peers, but justified by credit risks).
• Tangible book multiple: ~1.2x, but ROTCE of 13.7% suggests improving efficiency.
• Analyst Take: A high-risk, high-reward play. Its international footprint could pay off if trade tensions ease, but credit quality and execution remain critical.

Valuation Metrics: Where Is the Value?

Bank	Forward P/E	Price-to-Tangible Book	ROE	Risk Profile
JPMorgan	15.06	2.70x	16.88%	High (macro-sensitive)
Wells Fargo	13.21	~1.5x	12.15%	Moderate (restructuring)
Citigroup	10.38	~1.2x	13.7%	High (geopolitical/credit)

Key Takeaways:- JPMorgan trades at a premium for its scale and diversified revenue streams, but its valuation may be vulnerable to macro slowdowns.- Wells Fargo offers value but requires patience for recovery execution.- Citigroup is a contrarian bet on emerging markets rebounding, but credit risks are material.

Credit Quality: A Glass Half Full or Half Empty?

All banks increased credit reserves, reflecting cautious underwriting. JPMorgan's $3.08B provision and Citigroup's 53% jump in reserves suggest management is bracing for potential delinquencies. Wells Fargo's NPA decline offers hope, but its commercial loan portfolio's exposure to tariff-sensitive industries (e.g., autos) remains a concern.

Investors should monitor:- JPMorgan: Its CET1 ratio (15.8% post-stress test) offers a buffer, but commercial loan defaults could test that.- Citigroup: Emerging market exposures (e.g., China, Brazil) are key risks but also growth opportunities if trade tensions ease.- Wells Fargo: Its smaller scale means housing market weakness hits harder, but its retail deposit franchise is a stable base.

Investment Recommendations

Prioritize Diversification and Balance Sheets:1. Buy JPMorgan for its resilience: Its trading strength, global reach, and ROTCE leadership make it the sector's “best in class.” However, consider hedging with put options if macro risks escalate.2. Hold Wells Fargo for value: Its undervalued multiple and balance sheet growth potential make it a “wait-it-out” play. Avoid if housing starts decline further.3. Avoid Citigroup unless credit risks resolve: Its valuation is compelling, but until restructuring costs subside and credit quality stabilizes, it's a higher-risk option.

Avoid the Pitfalls:- Do not chase trading gains alone; look for banks with fee-based revenue diversification (e.g., JPMorgan's advisory business).- Steer clear of banks overly reliant on U.S. retail lending (Wells Fargo) if retail sales slow further.

The Bottom Line

The Q2 results show that big banks remain adept at capitalizing on short-term tailwinds like volatility and stress test wins. Yet, the prolonged macro risks—slowing consumer spending, trade wars, and housing stagnation—demand caution. Investors should favor banks with diversified revenue streams (like JPMorgan's global operations) and strong capital buffers. For now, the sector's mixed performance suggests a selective approach is needed to navigate this stormy landscape.