Bank Earnings Roundup: C, WFC, GS, JPM

Image Source: Hakan Dahlstrom

By Brian Nelson, CFA

Citigroup Authorizes New $20 Billion Buyback Program

On January 15, Citigroup (C) reported better than expected fourth quarter results with revenue and GAAP earnings per share coming in higher than the consensus forecast. Revenue increased 12% from the prior year, to $19.6 billion, while net income for the fourth quarter of 2024 came in at $2.9 billion, or $1.34 per diluted share. Its CET1 Capital ratio was 13.6% at the end of the period versus 13.7% at the end of the prior quarter last year. Citigroup’s book value per share came in at $101.62 at the end of the quarter, increasing 3% versus the prior-year period, while tangible book value per share was $89.34 at quarter end, up 4% versus the same period last year. Shares of Citigroup trade lower than book value, but the discount is partially warranted given the bank’s return on common equity in the mid-single digits, generally below a reasonable cost of capital assumption. Citigroup expects its 2026 return on tangible common equity, however, to be between 10%-11%, which would showcase value creation for shareholders and warrant a price-to-book ratio greater than 1, in our view. Citigroup put up a record revenue year in Services, Wealth and U.S. Personal Banking and is entering 2025 with momentum across its businesses. The bank also authorized a new, multi-year program to repurchase $20 billion in common stock. We liked the news, but we prefer more diversified financial plays as in the Financial Select SPDR (XLF). Shares of Citigroup yield 3% at the time of this writing.

Wells Fargo Puts Up Strong Earnings Growth in Fourth Quarter

Wells Fargo (WFC) reported mixed fourth quarter results on January 15 with revenue coming in slightly lower than expected and non-GAAP earnings per share coming in ahead of the consensus forecast. For the quarter ended December 31, 2024, total revenue dropped 0.4%, while net income advanced 47%, to $5.08 billion, or $1.43 per share (up from $0.86 in the same period last year). Wells’ experienced strong fee-based revenue expansion in the quarter, which largely offset expected declines in net interest income. Its CET1 Capital Ratio was 11.1% at the quarter end, down from 11.4% in the same period a year ago. Wells’ return on tangible common equity was 13.9% in the quarter, up nicely from the 9% it registered in the same period last year. Tangible common equity came in at $135.6 billion while total equity was $181.1 billion, well below its market capitalization of ~$237 billion. Wells Fargo’s shares aren’t cheap, but the bank continues to be shareholder friendly, having repurchased ~$20 billion of common stock during 2024, up 64% from last year, while it recently raised its common stock dividend per share by 15%. Wells Fargo is executing well, with its credit card business generating strong growth, its net checking accounts growing meaningfully in 2024, and its mobile active customers growing by 1.5 million in 2024. Revenues in its trading and investment banking business grew by double-digits in 2024. CEO Charlie Scharf believes Wells is in the early stages of the momentum it is building, and we tend to agree, though Wells’ price to total equity of 1.3x means shares aren’t trading at bargain basement levels. Shares of Wells yield 2.25% at the time of this writing.

Goldman Sachs’ Robust Earnings Growth, Strong Economic Returns

Goldman Sachs (GS) put up a blockbuster fourth quarter report January 15, with revenue and GAAP earnings per share coming in ahead of the consensus estimate. Net revenues of $13.87 billion in the fourth quarter of 2024 were 23% higher than the same period last year, with higher net revenues across all its segments and significant growth in Global Banking & Markets. Operating expenses of $8.26 billion in the fourth quarter of 2024 were 3% lower than the fourth quarter of 2023. Provisions for credit losses were $351 million for the fourth quarter of 2024, down from $577 million for the fourth quarter of 2023. Net earnings of $4.11 billion in the quarter, translated into fourth-quarter earnings per share of $11.95 compared to $5.48 in the fourth quarter of 2023, a more-than-doubling. The company ranked #1 in worldwide announced and completed M&A for the year, while assets under supervision advanced 12% during the year, to a record $3.14 trillion. Return on equity was 14.6% in the quarter, while return on tangible equity was 15.5%, with book value per share coming in at $336.77, representing growth of 7.4%. Goldman Sachs is trading at 1.8x book value, indicating that the firm’s shares are far from cheap compared to the price-to-book multiples of peers Citigroup and Wells. Shares of Goldman yield 2.1% at the time of this writing.

JPMorgan’s Dimon Speaks of Inflation and Geopolitical Conditions as Key Risks

On January 15, JPMorgan (JPM) reported better than expected fourth quarter results with both revenue and GAAP earnings per share coming in higher than the consensus forecast. Managed net revenue grew 9.5%, to $43.7 billion, while net income came in at $14 billion, up 50% from the $9.3 billion it posted in the same period a year ago. Diluted earnings per share came in at $4.81, up from $3.04 in the year-ago period. Fourth quarter return on common equity expanded to 17% from 12% in the same period a year ago, while return on tangible common equity came in at 21%, up from 15% in last year’s quarter. CEO Jamie Dimon talked of strength in investment banking fees, Markets revenue, and Payments fees and pointed to nearly 2 million net new checking accounts opening in 2024. In its Asset & Wealth Management division, JPMorgan brought in cumulative net inflows of $976 billion over the past two years. Dimon had the following to say about risks to the banking sector: “The U.S. economy has been resilient. Unemployment remains relatively low, and consumer spending stayed healthy, including during the holiday season. Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business. However, two significant risks remain. Ongoing and future spending requirements will likely be inflationary, and therefore, inflation may persist for some time. Additionally, geopolitical conditions remain the most dangerous and complicated since World War II. As always, we hope for the best but prepare the Firm for a wide range of scenarios.” At the end of the quarter, book value per share was $116.07, up 11%, while tangible book value per share totaled $97.30, up 13%. Shares of JPMorgan trade at 2.16 book, the most expensive in its peer group consisting of Citigroup, Wells, and Goldman. Shares of JPMorgan yield 2% at the time of this writing.

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