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The first round of bank earnings for the second half concluded on Friday, showcasing generally better-than-expected results from three of the largest U.S. banks: JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Wells Fargo & Co. (NYSE:WFC).
Despite the overall positive trend, market reactions were broadly negative, particularly for Wells Fargo, reflecting some specific concerns and risks.
According to Goldman Sachs analyst Richard Ramsden, trading results exceeded consensus expectations by 7%, driven by a 2% increase in Fixed Income, Currencies, and Commodities (FICC) and a 15% rise in Equities.
The year-over-year growth in trading, at 10%, surpassed the high end of the intra-quarter guidance, which had anticipated revenue growth to be slightly above the mid-single digits year-over-year.
“We expect questions on the sustainability of trading going forward in a lower vol environment, and an update on the accelerating investment banking backdrop,” Ramsden wrote.
CEO Jamie Dimon highlighted the bank’s cautious outlook despite the strong performance.
“While market valuations and credit spreads seem to reflect a rather benign economic outlook, we continue to be vigilant about potential tail risks. These tail risks are the same ones that we have mentioned before. The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown,” Dimon said.
Dimon also addressed the issue of inflation.
“There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world. Therefore, inflation and interest rates may stay higher than the market expects.”
Shares of JPMorgan Chase fell 1.9% minutes after the New York stock market opened.
Read Also: Wells Fargo Q2 Earnings: Net Interest Margin Slides, Average Loans Decline, Stock Falls
CEO Charlie Scharf highlighted the ongoing transformation at Wells Fargo.
“Our efforts to transform Wells Fargo were reflected in our second-quarter financial performance as diluted earnings per common share grew from both the first quarter and a year ago.” Scharf also stressed the consistent credit performance and a slowdown in customers reallocating cash into higher-yielding alternatives.
Shares of Wells Fargo plummeted by 6.6%, on track for the worst session since mid-March 2023.
Citi CEO Jane Fraser emphasized the growth in client investment assets and the bank’s focus on rationalizing the expense base.
“Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” she said. “We achieved positive operating leverage with revenue up 4% and a 2% decline in expenses.”
Shares of Citigroup fell 1.9%, mimicking Thursday’s losses.
The Financial Select Sector SPDR Fund (NYSE:XLF) inched up slightly by 0.1%, eyeing the fourth straight session of gains. The SPDR S&P Bank ETF (NYSE:KBW) rose 0.2%
Regional banks slightly outperformed, with the SPDR S&P Regional Banking ETF (NYSE:KRE), up 0.3%.
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