Q2 Earnings Recap: A Closer Look at the Money Centers
AInvestWednesday, Jul 17, 2024 4:43 pm ET
6min read
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Markets closely watched the earnings performance of the six major money center banks as a key indicator of economic health amidst concerns about credit quality, rising unemployment, and commercial real estate delinquencies. 

Entering earnings season with high expectations due to a strong pre-report rally, the banks delivered mixed but slightly better-than-expected results. These results were sufficient to stabilize their stock prices but not to drive significant gains. 

Loan growth was subdued, but banks managed to maintain profitability by controlling expenses, and credit issues remained benign, providing reassurance to market participants. Overall, the steady performance allowed financial stocks to hold recent gains, and investors remain focused on upcoming financial reports to gauge further insights. In this analysis, we will delve into the performance of these six major banks.

Q2 Peer-to-Peer Comparisons

In the Q2 2024 earnings performance of major money center banks, Return on Equity (RoE) is a critical metric showcasing profitability. JPMorgan Chase (JPM) led the way with an impressive RoE of 20.0%, highlighting its robust profitability, likely driven by its acquisition of First Republic. In contrast, Citigroup (C) lags with an RoE of just 6.3%, indicating weaker profitability compared to its peers.

Revenue growth is another vital indicator of performance. JPMorgan again stands out with a substantial year-over-year revenue growth of 22.0%, benefiting significantly from the First Republic acquisition. Goldman Sachs (GS) also shows strong revenue growth at 17.0%, driven by its investment banking model. Wells Fargo (WFC) and Bank of America (BAC) exhibit modest revenue growth at 0.7% and 0.1%, respectively, while Morgan Stanley (MS) and Citigroup (C) showed better performance with growth rates of 11.6% and 4.0%.

Net Interest Income (NII) growth provides insight into the banks' core lending profitability. JPMorgan, BAC, WFC, and Citigroup demonstrate mixed performance. JPMorgan was the only bank to post NII growth thanks, once again, to its First Republic purchase. Citigroup and Wells Fargo faced challenges with NII declines of -1.0% and -9.0%, respectively, indicating difficulties in their lending operations.

The Book Value per Share (BVPS) and Forward Price-to-Earnings (P/E) ratios offer a comparative analysis of valuation. JPM and MS are both expensive as book value trades near 2x. BAC is now trading at the cheapest valuations on a BVPS basis. It remains the most interest-rate sensitive name in the group but its cheap valuation still makes it attractive.  Morgan Stanley's Forward P/E of 14.0x suggests it is perceived as the most valuable by the market. Conversely, Citigroup appears the cheapest with a Forward P/E of 8.9x, possibly reflecting market skepticism about its growth prospects.

Trading revenues, particularly in Equity and Fixed Income, Currencies, and Commodities (FICC), show varying performances. Goldman Sachs leads in equity trading revenue with $3.17 billion, followed closely by Morgan Stanley at $3.01 billion. In FICC trading, JPMorgan dominates with $4.88 billion, significantly higher than its peers, showcasing its strength in trading operations. Growth in these areas is vital for banks, and while JPMorgan and Goldman Sachs excel, others like Wells Fargo show modest trading revenues.

Loan growth is another key metric, with Morgan Stanley leading at 7% year-over-year, indicating strong lending activity. JPMorgan and BAC also show healthy loan growth of 6% and 2%, respectively. In contrast, Wells Fargo and Citigroup face challenges with loan growth of -3% and 0%, respectively, reflecting difficulties in expanding their lending portfolios.

Finally, the three-month return provides a snapshot of recent stock performance. Goldman Sachs tops the list with a return of 28%, reflecting strong market confidence. JPMorgan and Morgan Stanley also perform well with returns of 19% and 20%, respectively. Wells Fargo lags with a 4% return, indicating less favorable market sentiment. 

Overall, the Q2 2024 earnings performance highlights the strengths and weaknesses across these major banks, with JPMorgan and Goldman Sachs emerging as standouts in profitability, revenue growth, and market performance.

Bank of America

Bank of America (BAC) reported mixed Q2 earnings, with an EPS of $0.83 slightly above the $0.80 estimate but down from $0.88 the previous year. Net revenue was $25.38 billion, surpassing the expected $25.27 billion. Despite this, net interest income (NII) fell 3% year-over-year to $13.7 billion, impacted by higher deposit costs. Shares hit a two-year high post-release but fell in pre-market trade. 

Trading revenue excelled at $4.68 billion, with strong equities trading at $1.94 billion. Provision for credit losses rose to $1.51 billion, reflecting caution amid economic uncertainties. Consumer Banking revenue fell 3% to $10.2 billion, though average loans increased by 2%. Investment Banking revenues rose to $1.56 billion, beating estimates, driven by higher advisory revenues and strong underwriting. 

Non-interest expenses were $16.31 billion, slightly above estimates, but the efficiency ratio improved to 63.9%. BAC's return on average equity was 9.98%, and it raised its dividend by 8%. Overall, BAC demonstrated strengths in trading and investment banking, offset by NII challenges and higher credit loss provisions, maintaining strong capitalization and a focus on long-term growth.

Citigroup

Citigroup's Q2 earnings report reflected solid performance, with revenues of $20.14 billion slightly surpassing estimates of $20.11 billion, bolstered by a $400 million gain from the Visa B exchange. Total loans were $687.7 billion, exceeding the expected $680.54 billion, and deposits were approximately $1.3 trillion. The Markets segment posted strong revenue of $5.09 billion, beating the $4.75 billion estimate, while Wealth revenue was $1.81 billion, above the $1.73 billion estimate. Despite a 3% year-over-year decline in Net Interest Income (NII) to $13.5 billion, non-interest revenue rose 20% year-over-year to $6.65 billion.

 Expenses decreased by 6% sequentially to $13.35 billion, but credit costs surged to $2.48 billion. The bank's Q2 operating expense was $13.35 billion, a 1.6% decrease year-over-year, though expenses for 2024 are expected to be at the higher end of the guidance range.

Citigroup highlighted strong consumer credit card spending and growth in US personal banking. However, some areas, like Services revenue and Investment Banking, showed room for improvement. The bank reaffirmed its medium-term RoTCE goal of 11-12% and its full-year revenue forecast of $80-$81 billion, emphasizing continued investments in infrastructure and regulatory compliance.

Goldman Sachs

Goldman Sachs (GS) reported strong Q2 earnings, with net revenue of $12.73 billion, surpassing the estimated $12.39 billion and marking a 17% year-over-year increase. EPS exceeded expectations, highlighting robust performance across key divisions. Despite high pre-report expectations and a strong year-to-date stock performance, the results fell short of whisper numbers, particularly in advisory fees, suggesting potential profit-taking. 

FICC sales and trading revenue rose 17% year-over-year to $3.18 billion, and Global Banking & Markets revenues increased 14% to $8.18 billion. Equities sales and trading revenues were $3.17 billion, up 6.8%. Investment banking revenue was $1.73 billion, slightly below estimates but up 21% year-over-year. Advisory revenue grew 6.7% but missed estimates, while equity and debt underwriting exceeded expectations. 

Provisions for credit losses decreased significantly to $282 million, showcasing effective risk management. Operating expenses were higher than expected at $8.53 billion, driven by increased compensation expenses. 

Overall, Goldman Sachs demonstrated strong revenue growth and effective credit risk management, though high operating expenses and shortfalls in advisory and investment banking warrant attention for future performance.

J.P. Morgan

JPMorgan Chase's Q2 2024 results demonstrated strong financial performance, with net income reaching $18.1 billion and EPS of $6.12, surpassing the $5.88 consensus estimate. Managed revenue was $51.0 billion, significantly higher than the $42.23 billion consensus, representing a 20% year-over-year increase. Despite an initial dip, shares rebounded ahead of its conference call, where investors were keen on insights about share buybacks and AI investments. 

CEO Jamie Dimon highlighted a 20% RoTCE excluding special items and significant growth in segments like investment banking fees and client investment assets. Net interest income (NII) was $22.9 billion, aligning closely with estimates and reflecting a 4% increase year-over-year, while the net interest margin (NIM) saw a slight decline to 2.75%. The bank's RoE was an impressive 23%, and RoTCE was 28%. The provision for credit losses was $3.1 billion, with net charge-offs primarily driven by Card Services. 

The Consumer & Community Banking unit saw net revenue of $17.7 billion but a 21% decline in net income due to increased expenses and credit costs. The Commercial & Investment Bank reported strong results with an 11% increase in net income to $5.9 billion.

Asset & Wealth Management also performed well, with a 6% revenue increase and significant growth in AUM. Corporate segment revenue surged to $10.1 billion, driven by gains related to Visa shares.

For the full year 2024, JPMorgan Chase maintained its forecast for adjusted expenses and net interest income, with Dimon emphasizing vigilance regarding economic risks while continuing to invest in long-term growth.

Morgan Stanley

Morgan Stanley (MS) reported robust Q2 financial results, surpassing both revenue and earnings per share (EPS) expectations. The bank achieved net revenue of $15.02 billion, above the estimated $14.27 billion, and EPS of $1.82, significantly exceeding the expected $1.65. Despite these strong results, shares dipped as profit-taking ensued, typical for the sector this earnings season. 

The Institutional Securities segment led with a 23.5% revenue growth to $6.98 billion, driven by strong equities and debt underwriting. Wealth Management, though slightly below revenue expectations at $6.79 billion, saw record asset management revenue and substantial asset inflows. 

Investment Banking revenues grew 51% year-over-year, with advisory and underwriting revenues exceeding estimates. The Investment Management segment also posted an 8.2% revenue increase, supported by higher asset management fees. 

Overall, Morgan Stanley's performance highlighted its strategic strengths across key business segments, with return on equity at 13% and return on tangible equity at 17.5%, both beating estimates and underscoring the firm's ability to capitalize on market opportunities and drive shareholder value.

Wells Fargo

Wells Fargo's Q2 2024 results were mixed, with revenue of $20.69 billion slightly exceeding expectations but net interest income (NII) falling short at $11.92 billion, below the $12.12 billion estimate. EPS matched consensus at $1.33, indicating resilience despite NII pressures. Shares dropped about 5% post-release, reflecting some profit-taking. 

Total average loans and deposits missed forecasts, and the net interest margin (NIM) was just below expectations at 2.75%. Commercial banking revenue was slightly below estimates, while corporate and investment banking, and wealth and investment management outperformed. 

Credit quality metrics showed higher net charge-offs and provisions for credit losses, highlighting cautious risk management. The efficiency ratio aligned with expectations, indicating cost discipline despite higher expenses. Capital strength was robust, with ROE at 11.5% and ROTCE at 13.7%, both exceeding estimates. 

Overall, Wells Fargo's results depict a bank managing a challenging interest rate environment while maintaining strong capital and diversified revenue streams, with strategic focus needed on improving NII and NIM amid cautious commercial loan demand.


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