JPMorgan, Wells Fargo, Bank of America and Citi beat earnings expectations, but worries about ‘headwinds’ remain

But J.P. Morgan stock lost ground after CEO Jamie Dimon warned of economic uncertainty as central banks execute plans to hike interest rates, even as consumers continue to spend and businesses remain healthy.

“We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening,” Dimon said.

JPMorgan Chase
JPM,
-0.10%
said its fourth-quarter profit rose to $11.01 billion, or $3.57 a share, from $10.4 billion, or $3.33 per share, in the year-ago quarter. Net revenue increased to $35.57 billion from $30.35 billion in the year-ago quarter.

JPMorgan Chase beat the Wall Street earnings estimates of $3.08 a share and revenue of $34.35 billion, according to data compiled by FactSet.

Analysts have been reducing their profit forecasts for JP Morgan in the days leading up to its fourth-quarter results with the latest estimate of $3.08 a share, down from $3.15 a share on Dec. 30, according to FactSet data. But the bank still topped the more bullish forecast of $3.15.

Shares of JPMorgan Chase fell 2.4% in premarket trades.

Bank of America 
BAC,
+0.26%
stock fell 1.4% after the financial firm beat its earnings and revenue targets as it benefitted from higher interest rates on its loans.

Bank of America said it earned $7.1 billion, or 85 cents a share in the fourth quarter, compared to $7 billion, or 82 cents a share, in the year-ago quarter. Revenue, net of interest expense, increased by 11% to $24.5 billion.

Wall Street analysts expected earnings of 77 cents a share on revenue of $24.17 billion, according to data compiled by FactSet.

Net interest income rose 29%, or $3.3 billion, to $14.7 billion, “driven by benefits from higher interest rates, including lower premium amortization expense, and solid loan growth,” the bank said.

Wells Fargo & Co.
WFC,
+0.21%
stock fell 3.7% after its fourth-quarter revenue missed expectations.

The bank said its fourth-quarter profit fell by about half to $2.59 billion, or 67 cents a share, from $5.47 billion, or $1.38 a share in the year-ago quarter. That’s ahead of the analyst estimate of 60 cents a share.

Revenue declined 5.7% to $19.66 billion, against an analyst consensus of $19.99 billion.

Net interest income increased by 45% to $13.43 billion.

The bank said earlier this week that it was reducing the size of its home-mortgage business. It also said that consumer banking and lending loans increased 4% and commercial banking loans climbed 18%.

Wells Fargo also previously disclosed an impact of 70 cents a share from litigation and regulatory matters including a recent settlement with the Consumer Financial Protection Bureau.

Citigroup 
C,
+0.78%
is expected to post earnings of $1.14 a share on revenue of $17.96 billion, also on Friday.

Analysts at Keefe, Bruyette & Woods said they expect strong net interest income growth from the big banks as higher interest rates allow them to charge more to lend money. At the same time, activity has been weak in investment banking and mortgage lending.

Overall, however, U.S. consumers remain have relatively low unemployment numbers despite an increase in layoffs of late.

With the earnings from the big banks, Wall Street is looking for clues on the health of the economy and the impact of higher interest rates and inflation.

Shares of the big banks have been moving up in 2023 but are still well below year-ago levels.

As of Thursday’s close, JPMorgan stock has risen 4% in 2023 but it’s down 16.7% in the 12 months. The Dow Jones Industrial Average
DJIA,
+0.64%
is now up 3.2% for the year, and down by 5.7% over the past 12 months, while the S&P 500
SPX,
+0.34%
rose 3.7% in 2023 while falling 15.5% in the past 12 months.

Bank of America stock is up 4.1% for 2023 and down by 30% in the past year. Wells Fargo stock has risen 3.7% in 2023 and lost 23.6% in the past year. Citigroup is up 8.5% so far in 2023 and is lower by 26.9% in the past year.

With potential competition for deposits from consumers, banks may have to pay out higher interest rates for account holder products such as CDs which could eat into margins.

Another key metric is asset quality, which is affected by the quality of the loan portfolio and the credit administration program. If these numbers start to weaken, it could offer more clues about a potential recession.

In an interview this week at the JPMorgan Healthcare Conference, JPMorgan CEO Dimon also unleashed some fresh barbs against cryptocurrencies and criticized the crypto-trading platform FTX, which filed for bankruptcy late last year.

The outspoken Dimon had warned against what he termed an economic hurricane in a widely quoted interview in June.

Dimon revisited the remarks on Tuesday in an interview on Fox Business. 

“I shouldn’t have ever used the word ‘hurricane,’” Dimon said in the interview. “What I said was there were storm clouds which may mitigate. People said they didn’t think it was a big deal, and I said no, those storm clouds could be a hurricane. And so I’m saying this stuff, I’m talking about … it could be nothing [or] it could be bad, and I think we should understand, I’m not predicting one or the other.”

Also this week, BlackRock Inc.
BLK,
-0.26%
added its name to the growing list of financial and other companies cutting jobs with plans to reduce its workforce for the first time since 2019.

Also Read: BlackRock cutting 500 jobs or less than 3% of workforce

On Tuesday, Goldman Sachs is forecast to report earnings of $5.56 a share on revenue of $10.76 billion and Morgan Stanley is expected to report a profit of $1.29 a share on revenue of $12.54 billion, according to the latest analyst estimates.