The official start of the first-quarter reporting season was given with the earnings statement of the banks Wells Fargo and JPMorgan Chase. However, 6% of the companies in the S&P 500 already reported their actual results for the quarter, with 83% of them having a positive EPS surprise and 59% have reported a positive revenue surprise.
However, the new reporting season comes amid the expectations of Wall Street for decline for Q1 2019 earnings by 4.3%, which will be the worst reporting season since 2016.
Foreign exchange has been cited on the most earnings calls to date as a factor that either had a negative impact on earnings or revenues in Q1 or is expected to have a negative impact on earnings and revenues in future quarters. Higher wages and labor costs were also important factors for worsening earnings.
However, despite analysis, the start of the earnings season was better than expected following the higher profit reported by two key financial institutions – JPMorgan Chase and Wells Fargo.
The results of the banks are closely monitored by investors for the health of the US economy and the financial system.
JPMorgan Chase reported new record earnings
The US investment bank JPMorgan Chase achieved new records with its latest earnings statement. The largest US bank reported better-than-expected earnings for the first quarter, alleviating fears that a slowdown in economic growth could affect the performance of the financial institution.
The largest US bank by assets shows that its business remains strong in the first three months of 2019 thanks to strong US economic growth, moderate inflation and strong consumer and business confidence.
The consumer loans granted by the bank increased by 4% compared to the same period of the previous year. JPMorgan’s total revenue rose by 4% to 29.85 billion USD, a record level for the bank. For comparison, analysts expected revenue of 28.44 billion USD.
The net profit rose to a record 9.18 billion USD or 2.65 USD per share in the quarter ended March 31. A year earlier, the bank reported a profit of 8.71 billion USD or 2.37 USD per share. This is a 5% growth and is the highest value in the creditor’s history. Moreover, JPMorgan beam analysts expectations for earnings to reach 2.35 USD per share. The net interest income of the bank rose by 8% to 14.6 billion USD.
The bank’s net interest margin, a key indicator of profitability, rose by only 0.02 percentage points over the fourth quarter. This is a slower acceleration rate than the previous two quarters. The investors are concerned that the bank’s net interest margins may have reached their highest levels against the background of the Federal Reserve signal that it is unlikely to raise interest rates in short-term, and the spread between short- and long-term interest rates has shrunk.
The JPMorgan report also shows another warning sign. In the commercial lending segment, there are provisions of 90 million USD earmarked in the first quarter, mainly due to the decline in the creditworthiness of so-called “selected” commercial and industrial borrowers.
Wells Fargo earnings top estimates
America’s fourth-largest bank Wells Fargo reported a 16% jump in first-quarter profits thanks to lower expenses, which beat Wall Street’s expectations.
The embattled lender announced adjusted earnings of 1.20 USD per share. The revenues for the quarter totalled 21.6 billion USD, topping the 21 billion USD that analysts were hoping for. Net interest margin, however, missed estimates, coming in at 2.91%, below the 2.93% that was expected.
Wells Fargo reported a 3% decline in total average deposits during the first quarter to 1.3 trillion USD. The bank blamed lower wholesale banking and a decrease in wealth and investment management deposits. Consumer and small business banking deposits dipped 2% to 740 billion USD.
Wells Fargo’s total average loans stood at 950.1 billion USD, down very slightly from a year ago. The bank reported quarter-over-quarter declines in auto, credit card and commercial loans.
The lender remains under a growth restriction from the Federal Reserve and is operating under fourteen other consent orders. The bank continues to work to resolve a raft of scandals that have dogged the lender over the past year. It’s the bank’s first earnings report since Tim Sloan stepped down suddenly as CEO late last month. Sloan, a three-decade veteran of Wells Fargo, struggled to move the bank past two-and-a-half years of scandals that have hurt its reputation and its bottom line.