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Click on individual bank names in the table below to access American Banker's coverage of each company's earnings report. Links to relevant coverage, filings, releases, and bank benchmark profile data can be found in the Related Links area of each article.
October 27
It's hard out there for a bank.
An uncertain economy, tougher regulations and a prolonged slowdown in Wall Street activity have cast a pall over the banking industry and its recovery from the financial crisis.
Megabanks Citigroup Inc. and Wells Fargo & Co. have adopted two very different strategies to try to overcome those challenges — but as their third-quarter results showed on Monday, neither company has found a foolproof solution.
Since the financial crisis,
Both strategies have their pitfalls. Third-quarter revenue fell from the year-earlier period at both banks, excluding a gain from an accounting change at Citigroup.
"All these large banks are struggling with a weak domestic economy, tremendous uncertainty caused by the sovereign debt crisis in Europe, and a real lull if not cessation in terms of trading and new security issuance," says David Dietze, president and chief investment strategist of Point View Wealth Management, Inc.
Wells Fargo is "doing the meat and potatoes, nuts and bolts lending on Main Street," which "helps offset weakness in the so-called investment banking and trading realm," while "Citigroup has less operations on Main Street," he says.
Citigroup and Wells Fargo reported their results a few days after larger rival JPMorgan Chase & Co. told investors it had managed to (slightly) increase its revenue year over year in the third quarter.
Chief executive Jamie Dimon's company, which is generally considered to be the strongest player in the industry, has both a strong investment bank and a robust U.S. retail operation — meaning that when one business struggles, JPMorgan Chase can rely on the other to cushion its results. But even with those advantages,
Securities and banking revenue fell 12% year over year at Citigroup, to $4.8 billion, excluding the gain from the accounting change. But the third-largest U.S. bank also endured an 8% year-over-year revenue loss in its North American consumer banking operations.
Like other major U.S. banks, Citigroup is facing ongoing losses and legal exposures from the mortgage loans it made and securitized before the financial crisis. And chief executive Vikram Pandit warned on Monday that the banking industry would face those problems for the foreseeable future.
"In the developed markets, growth is likely to be slow for years. We remain concerned about the U.S. housing market, and the U.S. residential mortgage portfolios of most banks remain the greatest risk," he told analysts on a conference call.
Wells Fargo also struggled with weak investment banking results. But executives at the San Francisco-based bank blamed the bulk of its revenue loss on a lower net interest margin — the difference between what it pays to borrow and what it earns on loans and securities.
Wells gained some $40 billion in deposits, but that bulking up of its traditional banking operations ate into some of its profits, Chief Financial Officer Tim Sloan told American Banker in an interview.
"That did have an outsized impact on net interest margin," he says.
Other parts of Wells Fargo's consumer banking operations also failed to live up to analysts' expectations. The company's mortgage operations brought in $1.8 billion in profit, as consumers took advantage of low interest rates to refinance their home loans.
But that profit was a "disappointment," says Erik Oja, a banking equity analyst at S & P Capital IQ, adding that some analysts had expected a blowout quarter of at least $2 billion in mortgages.
The industry-wide wave of refis was not enough to boost mortgage revenues at Citigroup, though CFO John Gerspach said he was optimistic about its impact in the fourth quarter.
"Refi activity started later in the third quarter, and we have more momentum moving into the fourth quarter, so this is good momentum moving forward," he told reporters during a conference call Monday.
But analysts doubt that such momentum or other small signs of growth will be enough to boost bank revenues in the immediate future. Oja predicted that Wells Fargo's "revenues will fall again in the fourth quarter and continue to decline next year as well."
Dietze had a similarly gloomy outlook for Citigroup and Wells.
"Both banks are taking a very sober look forward here and quite frankly jobs are going to be lost," he says. "They can't control the environment, so I think number one has to be to cut costs."
