The Important Takeaways of the Big Banks’ Q3 Earnings Reports

Let me once again give you a warm welcome to the third-quarter earnings season, folks!

Per usual, the big banks kicked off the season with four reporting earnings throughout the past two weeks. Three banks announced their results last Friday, October 13 – Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC) – and then Bank of America Corporation (BAC) revealed its quarterly numbers this past Tuesday.

Now, longtime readers know that while I do look forward to earnings season, I’m not a fan of the big banks. I used to work for a division of the government that is now part of the Federal Reserve. And during my time there, I saw how they essentially “cook their books” – and that scarred me for life.

Wall Street on the other hand remains laser focused on the big banks’ earnings because they provide a preliminary read on the broader economy. And right now, the U.S. economy isn’t looking too hot.

First of all, interest rates are rising. The 10-year Treasury yield is almost at 5% now. There are concerns that our government is spending more money than they can handle now that we have to fund possibly a second war.

One big question is what the deficit will be if we fund a second war. The last I looked it was 5.63% of the GDP, but could we be headed to 8%? And even though we have a very strong dollar, you can see that Japan and China have been net sellers of Treasuries. Some of this is just for their own cash flow needs, but the only way we could raise more money to fund these deficits is to raise rates.

That has profound consequences on the U.S. economy.

We’ve already seen the damage in the real estate markets. The average 30-year fixed mortgage rate broke above 8%, and with the cost of homes still high, folks are being priced out of the housing market. According to the National Association of Home Builders (NAHB), 96.5 million households couldn’t afford the average price of a new home ($425,786) when the mortgage rate was 6.25%.

The other question plaguing Wall Street is where are we headed? If you look at consumer confidence, it fell to 103 in September (down from 108.7 in August), even though its present situation component rose to 147.1 (up from 146.7 in August). The problem is the expectations component, which dropped sharply to 73.7 in September (down from 83.3 in August).

In other words, consumers are spending based on money in their pocket, versus their expectations.

The bottom line is that the world is on edge. Long-term planning, long-term spending plans all get canceled because of this.

So, in today’s Market360 let’s dive into these four banks’ third-quarter earnings and see what they have to say about the future of the U.S. economy. We’ll also take a look at what one bank has done to dip its toes further into the artificial intelligence waters. And then, I’ll share the key to investing in the AI industry.

Citigroup Inc.

Citigroup announced third-quarter earnings of $1.63 per share on revenue of $20.1 billion. This compares to earnings of $1.63 per share and revenue of $18.5 billion in the third quarter of last year. Analysts were calling for earnings of $1.31 per share on revenue of $19.29 billion.

In regard to the U.S. economy, CEO Jane Fraser stated:

The global macro backdrop remains a story of de-synchronization. In the U.S., recent data implies a soft landing, but history would suggest otherwise. And we are seeing cracks in the lower FICO consumers.

She also noted that “despite the headwinds, our five core, interconnected businesses each posted revenue growth resulting in overall growth of 9%.”

Now, despite the better-than-expected results, the stock ended the day down slightly and is now down about 11.5% for the year.

JPMorgan Chase & Co.

For the third quarter, JPMorgan Chase reported earnings of $4.33 per share and revenue of $39.9 billion, beating analysts’ expectations for earnings of $3.97 per share and revenue of $39.4 billion. This compares to earnings of $3.12 and revenue of $32.7 billion, or a 38.7% year-over-year increase in earnings and a 22% year-over-year increase in revenue.

As far as the U.S. consumer in concerned, here’s what Chairman and CEO Jamie Dimon had to say:

Currently, U.S. consumers and businesses generally remain healthy, although, consumers are spending down their excess cash buffers. However, persistently tight labor markets as well as extremely high government debt levels with the largest peacetime fiscal deficits ever are increasing the risks that inflation remains elevated and that interest rates rise further from here.

He also commented:

Furthermore, the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships. This may be the most dangerous time the world has seen in decades.

Following its earnings release, shares of JPMorgan Chase popped in the wake of the earnings report, and are up about 7% for the year.

Bank of America Corporation

Bank of America announced third-quarter earnings of $0.90 per share, up from $0.81 per share in the third quarter of 2022. Revenue increased 3% year-over-year to $25.2 billion, up from $24.5 billion in the same quarter last year. Analysts were calling from earnings of $0.82 per share and revenue of $25.07 billion, so the bank topped expectations on both the top and bottom lines.

Chairman and CEO Brian Moynihan commented:

Our teammates delivered another strong quarter. We generated $7.8 billion in earnings, up 10 percent from the third quarter a year ago. We added clients and accounts across all lines of business. We did this in a healthy but slowing economy that saw US consumer spending still ahead of last year but continuing to slow.

He continued by noting:

Just a quick note of what we see in the economy. Our team of economists predicts a soft landing, with a trough in the middle of next year. We see that in our customer data, our 37 million checking customers, we see their spending slowing down.

Shares of Bank of America rose 2% on Tuesday following its earnings release.

Wells Fargo & Company

Wells Fargo posted strong earnings for its third quarter. Earnings per share jumped 72.1% year-over-year to $1.48, up from earnings of $0.86 per share in the same quarter a year ago. This beat analysts’ estimates for earnings of $1.26 per share by 17.4%. Revenue increased 6.6% year-over-year to $20.86 billion, up from revenue of $19.5 billion in the same quarter last year. Analysts were calling for revenue of $20.05 billion.

CEO Charlie Scharf commented:

Our third quarter results were solid with net income of $5.8 billion and revenue of $20.9 billion. Our revenue growth from a year ago included both higher net interest income and noninterest income as we benefited from higher rates and the investments we are making in our businesses. While the economy has continued to be resilient, we are seeing the impact of the slowing economy with loan balances declining and charge-offs continuing to deteriorate modestly.

Shares of the company rose slightly following its earnings release and are about flat for the year.

Banks Are Turning To AI

During its earnings report, Wells Fargo also made a special note on its artificial intelligence-powered assistant (named Fargo). Specifically, the bank added a Spanish-language capability to make the virtual assistant even more accessible to a wider range of clients.

These AI virtual assistants aren’t anything new, but they have made quite the splash in banking. They help customers save time and provide more convenient access to their bank accounts and help them better manage their money.

But Wells Fargo isn’t the only bank using an AI virtual assistant, as Bank of America has an AI virtual assistant named Erica. Meanwhile, Citigroup and JPMorgan Chase are still working on theirs and have yet to make their virtual assistants available to the public.

None of this should come as a surprise, as AI has been taking over the news this year and naturally is taking over everywhere else. Some are referring to this as the AI Revolution.

Now, the AI Revolution has been steamrolling the country, and with it, dozens of AI-related stocks have exploded. But what we’ve seen is nothing compared to what’s just over the horizon.

I firmly believe that the AI boom we’re witnessing will be the biggest opportunity of the next decade… and the best way to play it is with what I like to call the AI Master Key.

Unlocking AI Gains with the AI Master Key

You probably know that a Master Key is a single key that can be used to unlock any door in a building.

Imagine a 1,000-room luxury New York high-rise. For privacy and security, each room has its own unique key, which lets residents access their assigned room, but no one else’s. But here’s the thing…

The entire building also has a Master Key — a single key that can gain access to any room. Whoever holds this Master Key has the power to unlock ANY door. And that is essentially what I’ve uncovered in the AI markets — a way to unlock the biggest gains — and potentially none of the losers.

This AI Master Key is a way to potentially unlock the AI industry’s biggest, fastest gains… but with nowhere near the amount of risk of buying small, unproven stocks.

It’s been a strong holding in my Growth Investor Buy List that’s done phenomenally well since my initial recommendation in 2019 – up more than 800% – and it should continue to outperform as AI continues to revolutionize the world.

For the name and ticker of this AI Master Key, click here.

(Already a Growth Investor subscriber? Log into the members-only website here.)

Sincerely,