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Investors experienced a broad rally in bank stocks since the bear market of 2020. It is unlikely that the same will continue in 2022. Three of the largest banks in the US reported their Q4 and full-year 2021 results on January 14, and the numbers will make investors take a hard look before diving in.
JPMorgan Chase
JP Morgan (NYSE: JPM) reported mixed figures for Q4 of 2021 but had a huge correction after its results were published. Its adjusted earnings per share stood at $3.33 compared to consensus estimates of $2.97. Revenue came in at $29.3 billion compared to estimates of $29.5 billion. The market reacted badly to the earnings miss and JPMorgan stock fell 6.15 on Friday.
It didn’t help that expenses at the bank for 2021 came in at $17.9 billion, up $1.8 billion or 11%, “largely on higher compensation”. Of this, $7.8 billion was recorded in the last quarter. For Q4, markets revenue was down $5.3 billion or 11%. Fixed income was down 16% year-on-year reflecting a more difficult trading environment. As the economic uncertainty of the last two years starts tapering down, trading has taken a hit.
The bank’s loan growth was up 6% in Q4 which suggests that loans are starting to pick up again after three flat quarters. JPMorgan’s Q4 net income fell to $10.4 billion from $12.14 billion in Q4 2020. These numbers include a benefit of $1.8 billion which were held as credit reserves.
Despite the headwinds, analysts have a target of $181.07 for the bank which represents a potential upside of almost 14.7% from current levels.
Citigroup
Citigroup (NYSE: C) reported a 26% drop in net profit for Q4 of 2021 as net income fell to $3.2 billion. Citigroup said an increase in expenses resulted in the decline. It also said that its numbers included a $1.2 billion “pre-tax impact” related to the sale of its consumer banking businesses in Asia.
For 2021, the bank’s net income almost doubled to $21.95 billion compared to 2020. Full year revenue, however, declined 5% to $71.88 billion. Its global consumer banking business saw revenue fall 6% to $6.94 billion compared to 2020. Its investment banking business saw a 43% jump in revenue.
The bank is undergoing major restructuring after Jane Fraser took over as CEO in March 2021 as the heavyweight has been divesting its non-US consumer businesses. Last week, Citigroup said that it would wind up its consumer bank in Mexico and that it would be selling its retail businesses in Indonesia, Malaysia, Thailand and Vietnam to Singapore-based lender United Overseas Bank.
Analysts have a $80.47 average target for the stock which is a potential upside of over 20%.
Wells Fargo
Wells Fargo (NYSE: WFC) earned $21.5 billion or $4.95 per share in 2021. Expenses for the whole year fell 7% and deposits increased 6%. In Q4, the bank saw consumer credit card growth move up 28% compared to the corresponding period in 2020. The bank said it seemed like Omicron hasn’t affected overall consumer spending.
It explained, “All spending categories were up in the fourth quarter compared to a year ago, with the largest increases in travel, fuel, entertainment and dining. Weekly debit card spend during the fourth quarter was up every week compared to both 2019 and 2020.” However, loan balances fell 3% compared to 2020.
Wells Fargo said that it expects net interest income to rise approximately 3% in 2022 from $35.8 billion in 2021 to about $38.66 billion. These numbers beat analyst estimates and the bank’s stock surged 3.68% after the numbers came out. However, the average analyst target for the bank’s stock is $57.21. The bank closed on January 14 at $58.06.
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