Q3 Bank Earnings: Everybody Loses

It's like a Mike Mayo fantasy camp out there, you guys.
By World Economic Forum (Flickr: The Global Financial Context: James Dimon) [CC BY-SA 2.0], via Wikimedia Commons

By World Economic Forum (Flickr: The Global Financial Context: James Dimon) [CC BY-SA 2.0], via Wikimedia Commons

JPMorgan Chase, Citigroup and Wells Fargo were the first out of the gate today, and all of them did worse this third quarter than they did in the last. Some, however, did lost less than others. No points for guessing which.

JPMorgan Chase & Co. posted profit that beat analysts’ estimates on a 48 percent surge in fixed-income revenue.

Citigroup Inc. reported earnings that beat analysts’ expectations as the New York bank benefited from strong demand in its investment banking and trading businesses.

Before moving on to the third one, let’s take a look at why Jamie Dimon and Mike Corbat have reasons to be excited beyond just a single quarterly beat.

Whether fixed-income trading revenues can sustain their third-quarter rebound will be a key topic of debate among investors and analysts. This business has been on a declining trend for years….

Perhaps most important has been the role of central banks in suppressing volatility, with huge government bond purchases and ultralow interest rates. This may be starting to change, at least in the U.S. The Federal Reserve appears to be preparing for another rate increase by the end of the year, which will push more investors to rejigger their portfolios.

Now, cue the slide whistle:

Wells Fargo & Co. said its third-quarter profit fell 2.6% as the nation’s third-largest bank by assets looked to move beyond the public outrage over a sales-tactics scandal that led to the departure of its CEO this week.

So that’s your baseline, Tim Sloan. Good luck.

Mr. Stumpf said on an internal conference call reviewed by The Wall Street Journal earlier in the week that net new business in the retail bank, a large part of the Main Street lender, “will be down for a while.”

The scandal has boosted expenses, which are likely to remain high for some time. Making matters worse, this is happening as interest rates remain at superlow levels. The result of this combination: Wells Fargo’s return on equity continues to grind lower. In the third quarter it was 11.6%, its lowest level in years.

But the overall impact of the scandal on Wells Fargo’s bottom line hasn’t yet been as dramatic, so far.

JPMorgan Earnings Beat Estimates on Bond-Trading Revenue [Bloomberg]
Citigroup’s Revenue and Profit Fall, But Still Top Expectations [WSJ]
Wells Fargo Profit Slips as Bank Battles to Restore Reputation [WSJ]
Banks’ Trading Revival May Last [WSJ]