The big banks released third quarter earnings Tuesday morning prior to the opening of trading. JPMorgan (JPM) and Citigroup (C) both delivered a dose of good news in their quarterly reports … and iven the markets are in full retreat, any good news is certainly welcome by investors.
Here is a brief rundown of both JPMorgan and Citigroup earnings. What this means for JPM and C stock is anyone’s guess.
JPM returned to profitability in this year’s third quarter, earning $5.57 billion on net revenue of $25.2 billion, which increased 5% year-over-year. Unfortunately, its profit of $1.36 per share was 2 cents short of the consensus estimate.
While JPM earnings were generally mediocre in Q3, the bank did manage to deliver a few positives in the quarter, including ….
- A 28% increase in M&A advisory fees; a 7% year-over-year increase in net revenue for its corporate and investment banking segment.
- A 20% increase in net income ($914 million) for its consumer and business banking segment along with a 9% increase in average total deposits ($476.2 billion).
- A 9% increase in net revenue ($3.02 billion) combined with a 20% increase in net income ($572 million) in its asset management business
- Legal costs in Q3 of just $1.1 billion, $6.1 billion less than the same quarter a year ago.
But possibly the best thing about JPM earnings was CEO Jamie Dimon’s comments about the U.S. economy. Specifically, Dimon stated, “While challenges remain in the global economic recovery, the U.S. economy is an exception, showing signs of steady improvement.”
With corporate America on solid footing it looks as though JPM earnings will continue to get stronger in the coming quarters. Investors might be disappointed with the 2-cent miss, but the reality is JPMs overall business is in good shape.
Unlike JPM, Citigroup beat expectations in Q3, delivering a profit of $1.15 per share excluding credit- and debt-value adjustments (CVA/DVA), 3 cents higher than the Thomson Reuters consensus estimate. Meanwhile, revenue was $19.6 billion, $540 million higher than analyst expectations. C stock is gaining plenty of ground today based on those two things alone.
Citigroup’s biggest action in the quarter has to be its decision to exit its consumer businesses in 11 different countries including Japan, as well as its consumer finance business in Korea. By focusing on its 57 million clients in the 24 remaining markets, Citigroup feels its Global Consumer Banking (GCB) segment will be able to deliver better performance in the future. Considering the GCB segment generated a 4% increase in revenue ($9.6 billion) and 26% increase in net income ($1.9 billion) in Q3, investors ought to be seriously considering C stock at this point.
Over in its Institutional Clients Group (ICG), which includes investment banking and equities trading, etc., it saw Q3 revenues increase 14% year-over-year to $8.4 billion, with adjusted net income up 29% to $2.5 billion. With the exception of Latin America — which saw both declining revenue and income in the quarter — Citigroup’s global ICG business is in great shape. In fact, all eight units within the ICG segment had year-over-year revenue increases this past quarter, with investment banking racking up the largest increase up 32% to $1.25 billion.
For my money Citigroup’s earnings in Q3 were better than JPMorgan’s, and that’s saying something because JPMorgan’s really weren’t that bad.
If you’re looking to make an investment in the big banks I’d be focusing on C stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.