Bank Stocks Rise as Wall Street Giants Kick Off Q2 EPS Season

JPMorgan (JPM:US) and Wells Fargo (WFC:US) shares led a rally in U.S. bank stocks Friday following their earnings reports. Shares in Citigroup (C:US) also rose after the results as the positive momentum following the successfully passed FED’s stress test continues.

Two weeks ago, the U.S. central bank said that the 23 biggest national banks weathered the severe recession, according to stress test results. The FED added that results showed that large banks remain well-positioned and ready to support households and businesses even during a severe recession.

“The banking system remains strong and resilient," Vice Chair for Supervision Michael S. Barr said in a press release.

"At the same time, this stress test is only one way to measure that strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses."

Solid results from the 2023 stress test paved the way for several banks to boost buybacks.

Here’s how three of the largest Wall Street banks performed in Q2.

JPMorgan Chase

The banking behemoth reported Q2 numbers that exceeded Wall Street estimates. The company’s adjusted revenue came in at $42.4 billion, topping analyst expectations by over $3 billion.

The adjusted earnings per share also easily beat estimates – $4.37 vs $4.00. More importantly, net interest income (NII), arguably the most important financial metric for banks, surged 44% year-over-year to $21.9 billion, ahead of the consensus at $21.2 billion.

“The U.S. economy continues to be resilient,” CEO Jamie Dimon said in the release. “Consumer balance sheets remain healthy, and consumers are spending, albeit a little more slowly. Labor markets have softened somewhat, but job growth remains strong.”

The company set aside $2.9 billion for bad loans. Still, the return on equity (RoE) was 20% while the return on tangible common equity came in at 25%.

Following the strong Q2 earnings report, JPMorgan hiked its 2023 NII outlook to $87 billion, up from the prior forecast by $3 billion. This marks the 3rd NII outlook hike since the beginning of the year.

JPMorgan Chase shares were seen trading about 2% higher on Friday. Congressman Pete Sessions disclosed in late June that he spent $50,000 - $100,000 to buy JPM corporate bonds on June 23.

Wells Fargo 

Wells Fargo also increased its 2023 NII guidance after reporting stronger-than-expected figures for the second quarter. Shares rose over 2% after the results.

The banking giant reported $1.25 in profit per share on revenue of $20.53 billion, ahead of the consensus of $1.16 on revenue of $20.12 billion. The bank’s net income surged by $1.8 billion compared to the same quarter last year.

Similar to JPMorgan Chase, Wells Fargo saw its Q2 NII rise 29% to $13.2 billion, paving the way for the company to hike its NII growth outlook to more than 14% from the prior above 10%.

“Our company remains strong and we have significant opportunities to continue to improve how we serve our customers. The U.S. economy continues to perform better than many had expected, and although there will likely be continued economic slowing and uncertainty remains, it is quite possible the range of scenarios will narrow over the next few quarters,” CEO Charlie Scharf said in a press release.

The return on equity came in at 11.4% while the return on tangible common equity was 13.7%. Wells Fargo reserved $1.71 billion for credit losses, the bank said.

Congressman Michael McCaul was aggressively selling WFC shares in the second week of May when the stock was trading in the high $30s. Shares were exchanging hands at around $45 apiece on Friday.

Citigroup

Citigroup shares opened modestly higher on Friday as the bank posted results with a smaller upside compared to JPM and WFC. Earnings per share of $1.33 on revenue of $19.44 billion were reported for the second quarter, ahead of the Street that was looking for earnings of $1.30 on revenue of $19.29 billion.

“Amid a challenging macroeconomic backdrop, we continued to see the benefits of our diversified business model and strong balance sheet,” CEO Jane Fraser said in a statement.

“Markets revenues were down from a strong second quarter last year, as clients stood on the sidelines starting in April while the U.S. debt limit played out,” Fraser added. 

Citi generated $4.45 billion from FICC sales and trading, crushing the consensus by nearly $1 billion. The company said that total deposits hit $1.32 billion in Q2.

Revenue in the personal banking and wealth management business unit rose 6% in the quarter to $6.4 billion driven by strong loan growth.

Representative Ro Khanna has continued to accumulate Citigroup stocks and corporate bonds in the month of May. Earlier this week, Rep. Khanna reported over a dozen trades involving Citi stocks and corporate bonds in June, including the $100,000 - $250,000 worth of purchases implemented on the fifth day of the month.

Summary

The Q2 earnings season is officially underway after several large companies, including PepsiCo (PEP:US), Delta Air Lines (DAL:US), and UnitedHealth Group (UNH:US) reporting stronger-than-expected results for the second quarter of calendar 2023. On Friday, JPMorgan and Wells Fargo joined in with solid results that saw their shares trade higher.