Tax breaks help U.S. bank profits rise in Q3

JPMorgan Chase & Co. said Friday that its third-quarter profits rose by 24% from a year ago, helped by a lower tax bill and higher interest rates, which allowed it to charge more for loans to consumers and businesses alike. That was enough to make up for a less-than-stellar quarter in its trading business.

The New York-based bank said it earned $8.38 billion in the first quarter, or $2.34 a share. That’s up from $6.73 billion, or $1.76 a share, in the same period a year earlier. The results beat the expectations of analysts, who were looking for JPMorgan to earn $2.26 a share, according to FactSet.

“The U.S. and the global economy continue to show strength, despite increasing economic and geopolitical uncertainties, which at some point in the future may have negative effects on the economy,” said Jamie Dimon, JPMorgan’s chief executive and chairman, in a statement.

Investors will carefully watch results from JPMorgan and other big banks Friday. The U.S. stock market is coming off its worst two-day performance since February, and investors want to see evidence that corporate profits remain strong. JPMorgan Chase’s shares were up slightly in premarket trading. The stock is up 1.1% this year after dropping more than 6% during the market’s downturn this week.

Like many banks, JPMorgan has benefited greatly from the rise in interest rates in the past couple of years. The bank’s net interest income rose by 9% from a year earlier. While the bank had to pay more interest to depositors, it was more than able to make up for those higher costs by charging more to borrowers. The bank’s net interest spread, which is the difference between how much a bank paid depositors for their funds and how much the bank charged to lend them out, was 2.24% in the quarter, up from 2.19% a year earlier.

The bank also continues to benefit greatly from the Republican-passed tax law. Its effective tax rate was 21.6% in the quarter, down from 29.6% a year earlier. While the bank’s profits before income taxes rose by more than a billion dollars, the money it paid in income taxes last quarter fell by $500 million compared to a year earlier.

JPMorgan’s other major business—its corporate and investment bank—had a weaker quarter than the rest of the bank. Investment banking revenues rose a modest 4% from a year earlier, and trading revenues were effectively flat. While stock trading revenues rose 17% from a year earlier, JPMorgan’s bond trading revenues—a much bigger piece of the bank’s trading business—fell 6%.

Firm-wide, JPMorgan’s quarterly revenue was $27.82 billion, up from $26.45 billion a year earlier.

Wells Fargo earnings rise but short of expectations

Wells Fargo, still haunted by multiple scandals, reported higher earnings in the third quarter Friday but still fell short of what analysts were looking for.

Wells saw its earnings jump to $6 billion from $4.5 billion in 2017’s third quarter, although last year the bank had to set aside $1 billion for legal expenses related to its mortgage practices before the financial crisis.

The San Francisco-based bank earned $1.13 a share, less than the $1.17 expected by analysts surveyed by Zacks Investment Research.

The company’s revenue was up slightly from the same period last year at $21.9 billion. The bank has faced several investigations in recent years over practices including the opening of accounts without customers’ consent, charging clients for unnecessary insurance policies, and imposing unfair fees tied to mortgage rates.

While its rivals are benefiting from rising interest rates and the Republican-passed tax law, due to the numerous scandals, Wells has been ordered by the government to halt growth until further notice.

Wells announced last month that it planned to cut up to 10% of its workforce over the next three years. The bank, which employs about 265,000 workers, announced in June that it would sell more than 50 retail branches in the Midwest and would reduce the number of branches it operates to about 5,000 by the year 2020.

The nation’s largest mortgage lender reported that its net interest income ticked up just slightly to $12.6 billion, from $12.5 billion in the year-ago period. That’s despite rapidly rising interest rates, which would typically benefit a bank like Wells.

On Thursday, mortgage buyer Freddie Mac said the rate on 30-year, fixed-rate mortgages jumped to an average 4.90% from 4.71% last week. That’s the highest level for the benchmark rate since April 2011. A year ago, it was 3.91%.

Wells Fargo’s stock edged down 0.6% to $51.13. They’ve fallen 16% since the beginning of the year and 7.6% over the last 12 months.

Citigroup profits rise

Citigroup said Friday that its third-quarter profits rose 12% from a year earlier, as the banking conglomerate was able to cut expenses and benefited from lower taxes. That was more than enough to make up for a small drop in revenue.

The New York-based bank earned $4.62 billion in the third quarter, up from $4.13 billion a year ago. Citi earned a profit of $1.74 per share, which was better than the $1.68 a share that was expected according to a survey of analysts’ by FactSet.

Citi was able to grow profits despite a small drop in revenue compared to a year earlier. The bank’s revenue was $18.39 billion in the quarter, down from $18.42 billion a year earlier. That’s despite the steady rise in interest rates in the last year. While Citi earned more in interest income last quarter, the bank also had to pay more for deposits, which effectively negated any gains.

Expenses were down 1% from a year earlier.

Most of Citi’s profit growth came because of lower taxes. Like other big companies, Citi got a big tax break from the tax law passed last year. The amount of money the bank set aside for income taxes last quarter was down 21% from a year earlier.

One place of weakness this quarter was Citi’s credit card division, one of the bank’s bigger businesses in the U.S. Branded card revenue slipped 3% last quarter from a year earlier, despite higher interest rate.

Citi’s investment banking division had a relatively strong quarter. Net income for Citi’s institutional clients group was up 2% from a year earlier. The banks saw higher trading revenue in stocks, bonds and currencies, one of Citi’s specialties.

Shares of Citi rose 1.2% in late-morning trading on Friday to $69.20 a share. Citi’s shares are down roughly 6% this year.