This will be a quick (and I mean very quick) summary of the big bank earnings, which include JPMorgan Chase & Co (NYSE:JPM), Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C). Here was the JPMorgan earnings preview, and the BAC, Citi previews here.
JPMorgan reported a strong quarter again with revenue growing 6% y-o-y, versus the 1% EPS growth, although the 3rd quarter of 2023 was a tough compare versus Q3 ’23 when net interest income (NII) and better credit metrics drove 29% y-o-y revenue growth and 36% EPS growth. JPM’s Corporate and Investment Bank (CIB) which is 39% of total JPM net revenue and 44% of total segment net income as of Q3 ’24 saw revenue and net income grow 45% and 84% y-o-y respectively. ROTCE (return on tangible common equity (i.e. ex goodwill) was a peer-leading 19%.
Q4 ’24 consensus is expecting $41.1 billion in revenue for +7% y-o-y growth and 28% EPS growth for a $3.89 estimate.
Sales, trading and investing banking are chopping a lot of wood right now for JPM: if the capital markets change, expect pressure on forward JPM estimates.
Here’s what is fascinating about JPM’s EPS and revenue estimates historically: the sell-side consensus keeps waiting for the bottom to fall-out and it hasn’t (at least yet).
6 quarters ago, back in mid-2023, sell-side consensus estimates for full-year calendar 21024 expected JPM to see -7% EPS growth on -2% revenue growth. Today, calendar 2024 full-year consensus is expecting +9% revenue growth and +19% EPS growth, respectively.
It’s the same thing that happened in 2023 – the street’s expectations have all been too low for JPM the last 2 years, and actual results (despite Jamie Dimon’s prognostications), have pulled estimates much higher.
The recession that was expected in 2022, never happened, the credit collapse, the spread widening, the loan and mortgage defaults, all a big nothing.
Today, JPM consensus estimates for calendar 2025 are expecting -3% net revenue growth and -11% EPS growth next year. As things stand today, these estimates will eventually likely work higher.
The stock is trading at 11x – 12x expected ’24 EPS but the EPS estimates start to get taken down (again) for 2025. On book value and tangible book value valuations, JPM looks very overpriced compared to BAC and C, but JPM’s ROTCE is way ahead of both banks returns on equity too.
Technically, JPM keeps banging it’s head on the all-time high of $225 – $226 but hasn’t broken out yet. Pay attention to this technical level.
JPM is a top 10 holding, but the goal is to lighten up on it over time and reduce it’s weight in accounts.
Bank of America
Bank of America reported 1% y-o-y net revenue growth which generated -10% EPS growth, which was the 4th straight quarter of y-o-y negative EPS growth for BAC, all likely due to a asset-liability duration mismatch towards liability-sensitivity for the bank, which in the rising rate environment from March ’22 through July ’23, wasn’t a good thing (as Martha Stewart would say).
BAC’s net interest margin (NIM) is 1.92% as of Q3 ’24 versus JPM’s 2.50% – 2.60%’ish, and Citi’s 2.33%, so it’s considerably lower for BAC than the other two banks.
Was this why Mr. Buffett sold a considerable portion of his position in BAC ? It’s hard to say. If the asset-liability mismatch doesn’t change, the compressed NIM which was a headwind, now becomes a tailwind.
For calendar 2025, unlike JPM, BAC sell-side consensus is expecting +12% EPS growth on +5% revenue growth, while it looks like calendar 2024 will end up at -5% EPS growth and +1% revenue growth for the calendar year.
Trading at 12x – 13x ’24 and ’25 expected EPS, and more reasonable book valuations than JPM, Bank of America is more of a stock to own for defensive markets. BAC has a global markets segment, which is roughly 20% of BAC’s net revenue and segment income, but it grew just 14% and 24% respectively in Q3 ’24.
For clients BAC is a “defensive holding” in terms of the portfolio, while JPM is going to be more sensitive to capital market and economic disruptions, BAC will be expected to hold it’s value better in a tough tape.
The stock absorbed the Berkshire Hathaway (NYSE:BRKa) selling quite well (in my opinion), and revenue and EPS growth expectations look better for 2025 today than 2024.
Citigroup
Citi too, like Bank of America reported y-o-y net revenue and EPS growth of +1% and -1% respectively, and overall ROTCE of 8%. The Services segment is really the strong segment for C, and it’s ROTCE was 26%. Services is 25% of Citi’s net revenue and accounted for 55% of C’s total segment income in Q3 ’24, growing both net revenue and segment income 9% and 22% respectively. However the rest of Citi’s business segments aren’t contributing much.
The upshot for C, again like BAC is that full-year 2024 consensus EPS and revenue growth is expected at -1% and +3% respectively, while 2025 full-year consensus is projected today at +23% EPS growth on +3% net revenue growth.
However, here is what’s not being said:
- ’26 expected EPS yoy growth: +24% EPS
- ‘25% expected EPS yoy growth: +23% EPS
- ’24 expected EPS yoy growth: -1% EPS growth
- ’23 actual EPS yoy growth: -14% EPS growth
- ’22 actual EPS yoy growth: -33% EPS growth
If you average the five years, it comes out to exactly 0% EPS growth over a 5-year period.
The Citi “valuation story” is all about it’s price to book and price to tangible book valuations, which are well below both JPM and BAC.
Mike Mayo has an $80 price target on the stock.
Citi is the “anti-bank” to JPM, and BAC is somewhere in the middle.
Summary / conclusion:
The juggernaut that has been JPM the last 15 years will eventually run out of runway. David Kelly, JPM’s Chief Global Strategist, noted this past 6 months on a JPM conference call – referring to the 15 year old secular bull equity market – “all systems break down” but that is just as apropos for JP Morgan as it might be for any dominant business, or any capital markets run, over an extended period of time. Look at the tech giants of the 1990’s, i.e Intel (NASDAQ:INTC), Cisco (NASDAQ:CSCO), Corning (NYSE:GLW), EMC (NYSE:EMC_old), GE, (not a tech giant), etc. While tech has a far shorter life cycle than a bank, Jamie Dimon will depart some day, and while I have no doubt the executive bench is superb, the market environment will be different, too. Things change, and organizations break down.
The plan is to trim JPM over the next few quarters, and some of it has started since JPM’s weight in client account is probably the biggest client overweight (relative to the SP 500), even bigger than Microsoft’s overweight.
The earnings preview titles were the right take on the stocks relative to each other (I thought), so JPM will look to be reduced on strength and BAC and C bought on weakness.
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None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. Investing can and does involve the loss of principal, even for short periods of time. Readers should gauge their own comfort with portfolio volatility, and adjust accordingly. All reference to EPS and revenue estimates are sourced from LSEG.