All of the big four U.S. banks have reported earnings, giving us greater insight into the overall health of the U.S. banking industry. While many have been worried about an imminent recession and a flattening yield curve, underlying bank operating performances remained strong. We have been paying close attention to management commentary on the economy, loan growth, and credit metrics to gauge how healthy the economy actually is. So far, commentary has been largely positive, core loan growth is still decent for most of the banks, with several even highlighting middle-market strength, and the credit environment remains benign. Yield curve aside, many of the fundamentals still look OK.
For Citigroup, results were mixed. The bank contained costs well and is already getting close to hitting their full-year return on tangible equity target; however, the bank is lagging from a growth perspective. While growth isn't perfect, even moderate growth combined with continued expense control should reasonably have Citi meeting or getting very close to its profitability goals, which is a welcome development for a franchise that has historically struggled here, and shares look relatively cheap to us.
JPMorgan has firmly established itself as the most profitable bank among the big four. Despite a difficult trading and issuance environment, the bank hit new highs for returns on tangible equity. We do not expect much improvement for the bank from here but do think the bank can sustain these returns without a turn in the credit environment.
For Wells Fargo, results were once again disappointing. Management guided down on their net-interest-income outlook, and while they stuck to their expense guidance, they admitted that they were spending more on compliance issues than they previously expected. The return on tangible equity did stay at 15%, but without a long-term CEO and more work to be done on the regulatory side, Wells still has a long way to go.
Bank of America, similar to many peers, also saw slowing revenue growth, but expense control and share repurchases drove EPS growth. The bank stuck to full-year expense guidance and is growing core deposit relationships, wealth assets, and commercial loans. We like where B of A is positioned competitively, and we think there could be room for improving profitability in the future.