Two of Wall Street’s largest banks presented mixed third-quarter results on Thursday, in the latest sign that Donald Trump’s election has yet to produce the expected boost to big finance that has driven a historic share price rally in the sector.
The earnings from both banks were stronger than analysts had forecast, but expectations had been lowered after top executives warned of trading woes in September. Financial markets were unimpressed, sending shares in Citigroup down as much as 2.4 per cent and JPMorgan as much as 1.2 per cent on Thursday.
The two stocks have been among the biggest winners of the “Trump bump” in US equities as investors have piled into the banking sector, hoping that a combination of lower taxes and lighter regulation would boost earnings. Shares in Citi and JPMorgan are up 50 per cent and 41 per cent respectively over the past year.
Yet executives caution that many recent developments in Washington have been a hindrance, not a help. Policy gridlock is making corporate America more reluctant to borrow, putting a lid on the revenues banks produce from lending.
“We all would anticipate greater loan growth if there was a bit more clarity”, said John Gerspach, Citigroup’s chief financial officer, pointing to uncertainty over tax policy. He added, though, that Citi had seen “good pockets of loan growth around the world”.
Christine Lagarde, IMF managing director, also called on Thursday for US policymakers to press ahead with tax reform. “The sooner it goes through, the better,” she told Bloomberg TV.
Yet the bank results also highlighted several areas of resilience. JPMorgan Chase delivered a 7 per cent rise in net profits, as the Federal Reserve’s increases in base rates supported lending profit margins. Improved car lease volume and credit card loan balances also supported revenues at its consumer and small business banking division.
Citi eked out an 8 per cent gain in net income to $4.13bn — although the figures were flattered by the sale of its fixed income analytics business to the London Stock Exchange, which allowed it to book a $355m pre-tax gain.
Conditions have been patchy on Wall Street, particularly compared with the Brexit-boosted period a year earlier. Calm in financial markets meant institutional clients sat on the sidelines — pushing bond trading revenues down 27 per cent at JPMorgan and 16 per cent at Citi.
The results also showed that the US banks, which have piled into credit card lending in recent months to offset ultra-low interest rates, are braced for more consumer loans to sour after a long period of benign lending conditions.
Citi booked $252m worth of credit losses, primarily at its North American consumer bank. It added $100m to its loan loss reserves because of a series of hurricanes and earthquakes.
JPMorgan’s credit costs, meanwhile, were about $200m higher than last year because of higher charge-offs at its card business.
Still, Marianne Lake, JPMorgan’s chief financial officer, said the increase did not reflect an underlying deterioration but was a result of the bank reaching “a little deeper” into riskier customers. Chris Kotowski, analyst at Oppenheimer, added he was still “not concerned” about credit quality, as default metrics remain near historic lows.
Areas of strength at Citi included consumer banking in Latin America, where the bank is investing heavily in its large Mexico division, and equities trading, a business it is also trying to expand. Group-wide revenues improved 2 per cent year on year to $18.2bn.
A focus on costs also helped the bottom line. Operating expenses were $233m lower than the same period last year, at $10.2bn.