Thu, 12 Oct 2017
Both banks reported decent results, but we don't see value in the shares today.
JP Morgan Chase and Citigroup kicked off earnings season by reporting results that were in line with our expectations. We're not planning significant changes to the fair value estimates of either bank.
For JP Morgan a growing economy contributed to improved performance in a variety of key metrics. And even though interest rates are rising slowly, the bank is already benefiting from rate movements, with net interest income rising 10% during the year – we expect this to continue as the rate environment continues to normalize.
We believe loan demand will be the primary factor affecting bank results over the next several years. On this front, the results were acceptable, though not exceptional in the quarter.
The big story for Citigroup was the firm's commitment to returning capital. The company wrote checks to shareholders totaling over $6 billion for repurchases and dividends in the third quarter alone. At the same time, the company's trading revenue was stronger than widely expected, with principal transactions revenue declining by only 3% from the previous year. The company's investment bank continues to surprise in an underappreciated aspect of the Citigroup story.
Furthermore, management continues to keep expenses under control, with operating costs falling 2% over the past 12 months. Efficiency improvements seem to be offsetting rising costs tied to revenue, which is another encouraging sign.
We think the market is fully appreciating both JP Morgan and Citigroup today and see the shares as fairly valued.