One Wells Fargo Center in Charlotte, North Carolina. Image source: Wikimedia Commons.
Of the nation's four biggest banks by assets, only one of them increased its revenue in the first quarter: Wells Fargo (WFC 5.70%). The other three -- JPMorgan Chase (JPM 0.82%), Bank of America (BAC +0.00%), and Citigroup (C +2.63%) -- reported revenue declines ranging from 3.4% to 11.1%.
Data source: JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup.
The results speak to the power and relative simplicity of Wells Fargo's business model. As a largely traditional bank, focused on taking deposits and making loans, the California-based lender sidestepped the declines in capital markets and investment banking revenues that its too-big-to-fail counterparts faced in the first three months of the year.
Investment banking fees at JPMorgan Chase (see here for an analysis of its earnings) were down 24% while trading slumped by 11%. Citigroup's were off by 27% and 13%, respectively. And Bank of America (see here for its earnings) saw revenue decline by 22% in its investment bank and by 16% in its sales and trading unit.
The news didn't come as a surprise, as JPMorgan Chase and Citigroup had previously warned that their Wall Street operations had struggled in the first quarter of the year. That led analysts to drop earnings estimates for the nation's biggest banks in anticipation of their results, which in turn positioned all four to beat expectations.
|
|
Q1 2016 EPS -- Actual |
Q1 2016 EPS --Expected |
Beat/(Miss) |
|---|---|---|---|
|
JPMorgan Chase |
$1.35 |
$1.26 |
7.1% |
|
Bank of America |
$0.21 |
$0.20 |
5% |
|
Wells Fargo |
$0.99 |
$0.97 |
2.1% |
|
Citigroup |
$1.10 |
$1.03 |
6.8% |
Data source: The Wall Street Journal.
Even though low interest rates continued to weigh on consumer banking results, the latter were nevertheless the star of the show last quarter. JPMorgan Chase's consumer and community banking segment saw revenue increase by 4% compared to the year-ago period, while Bank of America's improved by 3.3%. Growth in loans and deposits were behind the results.
"The consumer businesses continue to grow loans and deposits impressively, attracting deposits faster than the industry," said JPMorgan Chase CEO Jamie Dimon in prepared remarks. "The U.S. consumer remains healthy and consumer credit trends are favorable."
These same trends powered the 4.3% increase to Wells Fargo's top line. Its earning assets grew by $118 billion in the first three months of the year, split roughly evening between growth in its loan and securities portfolios. This more than offset a 5-basis-point decline in Wells Fargo's net interest margin, which measures the yield on a bank's earnings assets after deducting funding costs.
"We again generated solid growth in the fundamental drivers of long-term value creation: loans, deposits and capital," said Wells Fargo chairman and CEO John Stumpf. "We also completed two important acquisitions from GE Capital, which are great additions to our company and demonstrate the benefit of our strong financial position."
While shares of all four banks are up for the week following their respective earnings beats, Wells Fargo's results underscore the reason that its stock trades for a substantial premium to book value relative to Bank of America, Citigroup, and even JPMorgan Chase.
