The quarterly season of corporate America begins, with the accounts of the main US banks have just been disclosed.
Today, Friday January 12th, was Big Banks USA day JPMorgan, Citigroup, Bank of America, Wells Fargo, which released the financial results for the fourth quarter of 2023.
The quarterly reports of the Wall Street giants have officially kicked off the US earnings season.
The profits of the other Big Banks, Goldman Sachs e Morgan Stanleywill be announced next Tuesday.
JPMorgan: profit down, but EPS beats expectations. What CEO Dimon said
JPMorgan, the number one bank in the United States managed by CEO Jamie Dimon, announced that it reported in the fourth quarter of 2023 earnings per share of $3.04, on revenue of $39.94 billion.
JPMorgan cashed out in the last three months of last year to be precise net income down 15% year over year to $9.3 billion or $3.04 per share, compared to $11 billion, or $3.57 per share, in the prior-year period.
Net profit fell due to charges that the group had to pay, amounting to 2.9 billion dollars, following the assessment launched by the FDIC, the Federal Deposit Insurance Corporation, of the costs incurred to take control of the US regional banks that failed in March 2023.
The reference is to the collapse of SVB (Silicon Valley Bank), Californian start-up bank blew up in March of the shocking year, in a crash that gave rise to a real attack against the sector of regional credit institutions in the United States, in the form of flight of deposits and waves of sell-offs on the related securities.
The sell-off boom has also led some analysts to fear the resurgence of a banking crisis similar to that of 2008, which then triggered the infamous financial crisis of 2008.
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JPMorgan played an instrumental role in locking down last year, in the wake of the panic triggered by bank failures, the entire financial system of the States.
In particular, the giant engulfed First Republic, another US regional bank ended up in the storm.
Just as big on this acquisition, JPMorgan continued to grind out profits throughout 2023, so much so that a recent Financial Times article he noted that Big Bank made money during the first nine months of last year profits for a value equal to almost 1/5 of those archived by the entire US banking system.
Returning to the accounts for the fourth quarter of 2023, excluding extraordinary charges, JPMorgan’s EPS stood at $3.97, well above the estimates developed by analysts interviewed by FactSetequal to $3.35 per share.
JPMorgan’s turnover rose 12% to $39.94 billion, nearly matching the $39.78 billion consensus estimate.
It should be noted that JPMorgan stock has just returned from a leap, in the year 2023, equal to +27%.
The shares of the number one bank in the US reported the best trend among all the stocks of the main US banks, significantly outperforming the decline in the KBW Bank Index, which in 2023 amounted to -5%.
Jamie Dimon, chairman and CEO of JPMorgan, commented on the financial results of the US giant as follows:
“We finished the year with a solid quarter, producing net income of $9.3 billion, or $12.1 billion excluding the special assessment issued by the FDIC and losses on certain financial instruments. Our record results in 2023 reflect strong NII and credit gains, but we remain confident in our ability to continue to generate very positive returns even following their normalization.”
Dimon added that JPM’s balance sheet remains extremely strong, with a CET1 ratio of 15% and an “incredible” total loss absorption capacity of $514 billion.
Citigroup: focus on accounts after announcement of charges linked to Argentina and Russia
Attention to Citigroup’s accounts, which paid, as feared, the boom in charges that the bank suffered in the fourth quarter of 2023, the extent of which was learned by the market just two days ago, with the announcement of the CFO, the financial director Mark Mason.
The abrupt upward revision of the charges was motivated by the CFO Mason both with renovation costs that with the bank’s exposure to Argentina, in particular with the expected losses for the business in the country, in the wake of the devaluation of the peso decided by the Milei government.
Today, in announcing the accounts, Citigroup announced that the total costs suffered in the last quarter of last year they totaled an astronomical $4.66 billion, or $2 per share.
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Those surprise charges led Citigroup to close the last quarter of 2023 at a loss, as confirmed by the quarterly report just released.
The bank led by CEO Jane Fraser has indeed announced a loss of as much as $1.8 billion.
Adjusted earnings per share, equal to 84 cents per share, among other things, it may not be able to be compared to those 81 cents per share expected by the consensus.
Citigroup’s turnover it amounted to $17.44 billion in the fourth quarterbelow the $18.74 billion consensus forecast.
CEO Fraser commented on the accounts by defining the quarterly report as “very disappointing” due to the charges, reiterating however that, during 2023, Citigroup achieved “significant progress” in the process of simplifying its structure.
Bank of America numbers
He published the accounts also the other American banking giant, Bank of America. The market didn’t like the accounts, with the stock immediately dropping.
Bank of America’s net income fell in the fourth quarter to $3.1 billion, down more than 50% from $7.1 billion the same period last year.
However, EPS was better than expected, a quota $0,70 compared to the consensus forecast of $0.68.
To the bank, based in Charlotte, North Carolina, announced that its net interest margin (NII) fell 5% to $13.9 billion, as higher deposit rates and lower deposits themselves more than offset higher asset returns.
The CEO Brain Moynihan commented Bank of America’s quarterly report by speaking of “solid fourth quarter and full year results, with all of our businesses reporting solid organic growth, record customer activity and digital loyalty.”
The CEO highlighted BofA’s “cost discipline,” “which has allowed us to continue investing in growth initiatives”.
Not only: “Solid levels of capital and liquidity allow us to continue to witness responsible growth through 2024.”
It should be noted that Bank of America stock has cashed in in 2023 an increase of just +1.7%compared to the 10% jump marked by the financial sector sub-index of the S&P 500.
The legacy of the US banking crisis of March 2023 also affects Wells Fargo
Down on Wall Street too the stock of Wells Fargo, following the quarterly announcement.
The bank announced that it ended the fourth quarter of 2023 with net income of $3.45 billion, or 86 cents per share, up slightly from profits of $3.16 billion, or 75 cents per share in the same period in 2022.
Earnings have been depressed since an overall charge of $1.9 billion, or 40 cents per share, also linked in this case to the special assessment launched by the US Deposit Guarantee Fund.
Also having an impact $969 million, or 20 cents per share, linked to the support of liquidation costs.
That said, the bank benefited from a tax credit of $621 million, or 17 cents per share.
Another bad news came however the boom in provisions, that the bank had to carry out in view of credit losses (impaired loans and non-performing loans or also NPLs, Non-Performing Loans).
The they actually rose 34% to $1.28 billion from $957 million in the fourth quarter of 2022.
Wells Fargo stock is returning from a rise of more than +19% in 2023.
US bank stocks returning from the buy boom at the end of 2023
The question in this context is obligatory. What to do with US bank securities?
The bar to trigger new buys in the sector, analysts point out, has become higher, given the recent wave of buying that has overwhelmed the shares.
Just think, according to Bloomberg data dating back to 1991, that the KBW Bank Indexthe Wall Street sub-index which includes the stocks of the 24 main US banks, jumped by 30% in the months of November and December, taking advantage of the rally of the last two months of the strongest year ever.
All in all, the KBW Bank Index sub-index rose by 23% in the fourth quarter of 2023, after a trend that, for much of the year, was characterized by weakness.
But have the shares really run too far? In view of the publication of the balance sheet results of US banks, Richard Ramsden, analyst at Goldman Sachs, he wrote in a note in the last few hours that “bank securities are obviously not as cheap as they were previously”.
Ramsden also added, however, of do not assume that “people believe that bank stock valuations are excessive”, a livelli overbought.
US bank stocks have started to rise at the end of October, when expectations of a Fed ready to cut rates they started the buys.
In fact, the outlook of a central bank ready to cut the cost of money it doesn’t exactly bode well for banks, in general, which instead tend to benefit from a context of rising interest rates, due to the positive effect that monetary tightening usually produces on the net interest margin (NII), causing it to rise.
That said, rate hikes also present some side effects, which are currently affecting both the United States and Europe.
The monetary tightening, which was launched by Jerome Powell’s Fed and Christine Lagarde’s ECB to suppress the growth of inflation, also tends to depress the economy, causing the financing costs of businesses, families and states to soar, and thus risking causing debtors to find themselves unable or in difficulty to repay the loans granted by the banks:
a chain of events that ends up creating in the banks’ balance sheets the so-called impaired loans or, also, NPLs (non-performing loans) and bad debts.
The same rating agencies they are not particularly positive on the US banking sector, citing the prospect of a jump in NPLs and a continued decline in net interest margin.
Said this the prospect of rate cuts by the Federal Reserve should, hopefully, assist the US economy, benefiting the profitability of lenders.
Which, if it is true that on the one hand they would see a further decrease, with the Fed’s cuts, the positive effect of monetary tightening on the NIIon the other hand, they could once again benefit from a greater demand for credit from consumers and a more substantial disbursement of loans, thanks to the improvement in the fundamentals of the economy supported by the U-turn on rates by Powell & Co.
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