US banking giants JPMorgan Chase and Citigroup posted strong profits on Tuesday, while Wells Fargo suffered another earnings stumble and signaled cost-cutting is ahead.
Shares of JPMorgan and Citigroup rallied after both banks highlighted growth in their credit card businesses as US consumers kept spending during the holiday period.
The two New York giants also cited better institutional client sentiment that boosted some key trading divisions that have been weak in recent quarters.
“What the fourth quarter has demonstrated is the more clarity we have on these geopolitical issues, the more of a benefit we see in terms of corporate sentiment and the prospects for good growth,” Citigroup Chief Financial Officer Mark Mason said on a conference call with reporters.
Besides better relations between the United States and China, Mason cited diminished uncertainty on Brexit and progress on a new US-Mexico-Canada Agreement on trade.
Citigroup scored a 15% jump in fourth-quarter profits to US$5.0 billion, while revenues rose 7.3% to $18.4 billion.
Big push in China
At JPMorgan, net income surged 20.6% to $8.5 billion for the three months ending December 31, a period that saw revenues rise 9.0% to $29.2 billion.
The results helped the bank score record profits and sales for the year.
Chief Executive Jamie Dimon said despite the “continued high level of complex geopolitical issues” facing the global economy, the “resolution of some trade issues helped support client and market activity towards the end of the year.”
Dimon described the holiday season as “robust,” as reflected in a 10% jump in credit card sales volumes.
Dimon highlighted China as a key growth market, noting that last year it became the first US bank to be approved for a majority-owned securities business in the country.
Following that approval, JPMorgan plans to hire staff in China, especially in corporate and investment banking, and to a lesser degree in asset management and commercial banking, Dimon said.
“China will grow. We’ll grow with them. We’re going to do it our own way,” Dimon said on a conference call with reporters.
“Maybe the trade issues make it a little bit better or a little bit worse, but we’re going to continue to have the exact same plans.”
It was a much different story at Wells Fargo, where newly-installed Chief Executive Charlie Scharf has been mapping out a turnaround strategy since joining the struggling bank in October.
The company, a giant in US mortgage lending, has been on the back foot since late 2016 following a fake accounts scandal, one of the regulatory problems that prompted the Federal Reserve to impose a lending cap on the bank.
“During my first three months at Wells Fargo, my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve, while beginning to develop a path to improve our financial results,” Scharf said in a statement.
Scharf said he identified “clear” opportunities to improve performance and that “our cost structure is too high.”
There are “many areas where we will be able to increase our rate of growth,” Scharf said.
Scharf told analysts he would be unable to provide a schedule for righting the ship.
“Though I understand you would like time-frames around resolution, I cannot provide that today,” he said on a conference call with analysts. “Our job is to do the work that’s necessary.”
Net income at Wells Fargo sank 55.4% to $2.5 billion, dragged lower by $1.5 billion in litigation costs, some related to the fake accounts scandal.
Revenues dropped 5.2% to $19.9 billion.
JPMorgan’s share price rose 1.2% to $138.80, while Wells Fargo plunged 5.4% to $49.30. Citigroup added 1.6%, closing at $81.91.