By Liz Hoffman and David Benoit
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 16, 2019).
JPMorgan Chase & Co. shares touched a record high following
a strong third-quarter earnings report, underscoring the continued
solid performance of the largest U.S. lenders at a time of global
tensions and economic worries.
The New York banking giant was joined in Tuesday's earnings
parade by Citigroup Inc., whose results also exceeded Wall Street
expectations. Together, the figures confirmed that the largest U.S.
banks have yet to feel the sting of recent interest-rate cuts and
turbulence in the stock and money markets.
JPMorgan's stock rose 3% on a day when stocks moved broadly
higher. Citigroup gained 1.4%.
But executives warned that falling interest rates would
eventually take a bite out of profits. And at Goldman Sachs Group
Inc., a smaller bank that is more exposed to market shifts, profit
fell 26% from a year ago. The firm's Wall Street businesses slowed
and it continued to spend heavily on new Main Street businesses
that would make it look more like larger rivals that breezed
through the quarter. Goldman shares overcame an early dip to close
0.3% higher.
The Federal Reserve lowered its benchmark interest rates twice
this summer, the first cuts in more than a decade. Flat wages, a
slowdown in manufacturing and the effect of tariffs on imported
goods implemented by the Trump administration have added to
concerns that the decadelong economic expansion may be running out
of steam. Falling interest rates make it hard for banks to eke out
profits by lending, and executives Tuesday said a turn toward lower
rates would likely hurt their businesses.
But for now U.S. consumers and the banks that serve them are
doing well. "While it's slower growth, it's still growth," JPMorgan
Chief Executive James Dimon said. "The U.S. consumer is incredibly
strong."
Lower rates ginned up some new business, too. Citigroup and
JPMorgan wrote more mortgages as people rushed to refinance, and
Goldman's traders made more money on products tied to interest
rates, such as swaps and mortgages.
At Citigroup, where one of its core business lines is moving
money around the globe for companies and governments, executives
said trade tensions were making clients more cautious about
international expansion. Still, trade upheaval has benefits for
banks of Citigroup's size: CEO Michael Corbat said that although
China is buying fewer soybeans from the U.S, it is buying more from
other countries where the bank also does business.
"Our ability as a global bank to move with our clients on both
sides...to be helping them rethink what those trade routes and what
that supply chain looks like, I think we've been very effective,"
Mr. Corbat said.
JPMorgan posted a profit of $9.08 billion on revenue of $29.34
billion, both up 8% from the prior year. Citigroup's profit of
$4.91 billion was up 6%, helped by a lower tax rate as revenue rose
just 1%.
Goldman's revenue of $8.32 billion was down 6% from a year ago,
but profit fell more sharply because the bank is spending heavily
to build new businesses.
JPMorgan reported an industry-leading 15% return on equity, an
important measure of bank profitability. Goldman's was 9% and
Citigroup's was 10.4%.
JPMorgan's consumer business added new deposits despite paying
lower interest rates than some rivals. It can use those low-cost
funds to write mortgages and fund the multibillion-dollar corporate
loans for which it is known. The bank's net interest income -- the
difference between what it collects on loans and what it pays for
deposits -- rose by 2% to $14.23 billion, continuing a four-year
streak of quarterly gains.
Goldman is chasing the predictability of that income: Its core
Wall Street businesses struggled in the third quarter, as deal
making slowed and it took paper losses on its stakes in companies.
A slight uptick in trading wasn't enough to compensate.
Goldman has been building a consumer business that it hopes will
eventually compete with giant Main Street banks. Under the brand
name Marcus, it takes online deposits, makes personal loans and
recently launched a credit card in partnership with Apple Inc.
The costs of those efforts were clear Tuesday: Noncompensation
expenses rose 16% in the quarter, which Goldman offset by cutting
the money it sets aside for employee bonuses.
The effort will likely take years, Chief Executive David Solomon
acknowledged Tuesday, but there are early successes: The bank has
gathered $55 billion in consumer deposits, which reduces its
reliance on more expensive types of funding.
Mr. Solomon, Goldman CEO since last fall, is under pressure from
investors to lay out his growth plans for Goldman in early 2020.
The priorities he has sketched out so far include growing Goldman's
private-investing business, cross-selling top corporate clients on
products such as money management and cutting costs across the
firm.
Goldman's revenue from mergers and underwriting securities
offerings fell 18% as the initial-public-offering market quieted
and fewer corporate deals were completed. Goldman is the leading
stock underwriter this year, according to Dealogic, but the IPO
business -- worth $9 billion in fees across Wall Street last year
-- looks threatened after a few disastrous debuts, most prominently
the collapse of the IPO for WeWork's parent.
JPMorgan touted 22% revenue growth in its equity underwriting
business, and pushed aside questions about those soured deals.
In trading, the results across the banks were also mixed.
At Goldman, revenue from fixed-income trading was up 8% in the
quarter, but for the year it is down from 2018. JPMorgan's
fixed-income revenue was up 25%, a surge it said came despite
deteriorating markets. At Citigroup, it was flat.
Write to Liz Hoffman at liz.hoffman@wsj.com and David Benoit at
david.benoit@wsj.com
(END) Dow Jones Newswires
October 16, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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