On Monday, Citigroup (C), announced its Q2-2012 earnings report. Like JP Morgan (JPM) and Wells Fargo (WFC), Citi beat expectations. All three banks beat analyst estimates, primarily driven by cost cutting, stronger mortgage businesses and lower consumer delinquency rates. The flip side of this was the lower margins driven by low interest rates.
For Citi, Investment banking revenues were down 21% during the second quarter to $854 million. The stock was up over 1% around noon on Monday.
A New Old Trend
The drivers of revenues for these banks may give main street more faith in the banking system. Wells Fargo and JP Morgan also posted profits driven by the issuance of healthy loans. After all, risky loans and poor decision-making made by the banks was partly responsible for the financial crisis.
Wells Fargo increased loan profits in the second quarter, up 17% from last year’s second quarter. JP Morgan also increased business loans to $18.2 billion, up 6% from last year. JP Morgan’s commercial loan growth is up 16% from 2011 and has seen growth for the past 8 quarters. This last quarter, the commercial loan division posted profits of $673 million, contributing to the $5 billion in profits despite the nearly $6 billion trading losses from London.
To view recent articles about JPM and WFC earnings reports, click the tickers.
Business Section: Investing Ideas
So what have we learned about the banking system from these three earnings reports? It appears that banks are acting like banks again and are focusing on their loan business. Borrowers are using these loans to invest in their business and to buy homes taking advantage of low mortgage rates. How long will this trend continue? Does main street still need to worry about a failure of the banking system? Or should we believe that increased profits coming from lending will provide long term growth in the economy?
Use the Compar-O-Matic to analyze market cap for the three banks mentioned above:
1. Citigroup, Inc (C, Earnings, Analysts, Financials): Provides consumers, corporations, governments, and institutions with a range of financial products and services. Market cap at $78.14B, most recent closing price at $26.65.
2. Wells Fargo & Company (WFC, Earnings, Analysts, Financials): Provides retail, commercial, and corporate banking services primarily in the United States. Market cap at $180.2B, most recent closing price at $33.91.
3. JPMorgan Chase & Co. (JPM, Earnings, Analysts, Financials): Provides various financial services worldwide. Market cap at $137.31B, most recent closing price at $36.07.
(Written by Ryan Horch)
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