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As banks report earnings this quarter, investors and the media seem anxious about their prospects.
They should be.
Even though JPMorgan Chase, Citigroup, and Wells Fargo beat analysts' consensus estimates when they all reported Thursday (April 13), the headline numbers don't tell the real story.
Banks themselves had steadily walked down analysts' expectations for almost three weeks leading up to the start of earnings releases, so it shouldn't have come as a surprise that they magically beat forecasts.
Still, all the banks' stocks got hit while the market slump put pressure on them Thursday.
What They're Saying Versus the Truth
Citigroup handily beat earnings per share estimates, coming in 9% higher than consensus forecasts. But that didn't stop Citi's stock from sliding 0.8% after initially opening higher.
The big, positive surprise Citi enjoyed last quarter was a 17% pop in fixed income and equity trading revenue. Of the $4.39 billion generated by trading, fixed income was up 19% and equity was up 10%.
But the real news was underneath the headline positives.
The bank's net interest margin actually fell 3% to 2.74%, even though the Fed raised rates and NIM was supposed to be expanding. John Gerspach, the bank's CFO, talked up future rate hikes on an investor call, trying to put a positive spin on future NIM in the face of the unexpected drop in Q1.
Higher net credit losses at Citi were a weak spot, with consumer banking net credit losses globally up 17% year over year, and up a surprising 33% in North America alone.
JPMorgan Chase had a similar earnings per share (EPS) beat, topping analysts' estimates by 8.5%, and had better than expected trading revenue, too.
But, as was the case with all three banks reporting last week, loan growth slowed across all categories. JPM's CFO, Marianne Lake, defending the bank's huge size and reach, pointed to the slowdown in lending being offset by stronger investment banking revenue.
And then… JPMorgan's stock ended the day 1.2% lower.
Of the big three banks releasing earnings April 13, Wells Fargo (though it beat EPS estimates by 3%) took it on the chin, both in terms of its stock price at the end of the day and what lay under the earnings headline beat.
While bank officials talked up Wells' 18 straight quarters of at least $5 billion in revenue and the bank's "highest in the industry" return on equity and return on assets, it revealed that loan growth fell across the board.
Mortgage lending was down at the nation's biggest housing lender. Auto lending originations were down 5.5% from the previous quarter and down a whopping 29% from last year's Q1. At the same time, Wells' employee count was up by 3,700, even after closing almost 30 branches in the first quarter and after cutting 5,300 heads as …
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.