What Bank Investors Learned From JPMorgan, Citigroup Results

Start of earnings season showed trading revenue was muted; JPMorgan had better lending margins, Citigroup cut expense

JPMorgan CEO Jamie Dimond (Photo: AP) JPMorgan CEO Jamie Dimond (Photo: AP)

JPMorgan Chase & Co. and Citigroup Inc. kicked off banks’ earnings season by showing the effects of muted trading and concerns about consumer credit, as well as by addressing some hot topics such as bitcoin.

While both firms beat analysts’ expectations for their bottom lines, they used different ways to get there: JPMorgan relied on improved lending margins, while Citigroup continued to squeeze costs.

Here’s what investors got out of the first day of results.

Trading Declines

For a second straight quarter, low volatility weighed on banks’ fixed-income trading results. JPMorgan executives said performance was more in line with a typical third quarter, and that the steep drop said more about tough comparisons with last year, when activity spiked after the U.K.’s Brexit vote and in the run-up to the U.S. election.

A surprise jump in Citigroup’s revenue from equities trading -- a business it’s struggled with in recent years -- helped it beat estimates.

Bitcoin Chatter

As bitcoin topped $5,000 for the first time, it was a popular topic on banks’ calls with reporters. JPMorgan Chief Financial Officer Marianne Lake said the lender is “open minded” to getting involved with cryptocurrencies, if they’re properly regulated. That’s a much more measured stance than Chief Executive Officer Jamie Dimon offered last month, when he called bitcoin a “fraud” and said he would fire any employee trading it for being “stupid.”

Citigroup CFO John Gerspach said Thursday that his firm is taking an “intense” look at cryptocurrencies and the blockchain technology that underlies them.

Loan Growth

Banks have said that clients are pausing on taking out loans as they wait on policy changes in Washington and have the option to access cheap funding in the bond markets. Even though JPMorgan’s total loan growth has slowed, the 6 percent increase in what the firm considers "core loans" remains above peers, UBS Group AG analysts said in a note to investors.

Equifax Headaches

Equifax Inc. said last month it was breached and hackers were able to access sensitive information on 145 million Americans. The latest cyberattack has slowed down the origination process in some cases as lenders have to work harder to detect fraud, Citigroup’s Gerspach said.

Many consumers also locked their credit files in response to the hack, making it challenging to quickly extend loans and issue credit cards, he said.

“We are, honestly, under constant attack,” JPMorgan’s Lake said during a conference call. “This is not the first breach, nor will it be the last breach. And so as a result, we have been constantly evolving and refining the way we think about fraud prevention, detection, underwriting.”

Credit Concerns

Both lenders boosted reserves for consumer loan losses because they expect more borrowers to fall behind on their credit-card payments. That could halt a years-long trend of banks releasing billions from the amounts they had earmarked to cover write-offs of consumers loans.

Citigroup said delinquencies are coming faster than it expected, while JPMorgan said it has given loans to riskier borrowers in recent years to boost revenue.

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