Net Profit Performance

In the latest financial reports, Citigroup (C) exceeded expectations for net profit growth compared to the same period last year. JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) both surpassed analysts' expectations after deducting one-time items, but saw declines compared to last year.

Stock Price Reaction

Following the financial reports, JPMorgan Chase & Co. saw a decline of 1.2% in stock price, Citigroup dropped 1.8%, and Wells Fargo plummeted by 6%, becoming the worst-performing company in the S&P 500 index.

Interest Income Pressure

Banks' net interest income has been declining since the first quarter. JPMorgan Chase & Co.'s net interest income dropped to $22.8 billion, Wells Fargo's to $11.9 billion, and Citigroup's to $2.7 billion. The support of high interest rates on bank profits is gradually diminishing as the rise in deposit costs catches up with the increase in loan rates.

Credit Loss Provisions

Regarding credit risks, JPMorgan Chase & Co. increased its credit loss provisions by $3 billion in the second quarter, Wells Fargo increased to $1.2 billion, and Citigroup increased to $2.5 billion, marking a 36% year-on-year increase.

Expected Rate Cuts

Future rate cuts by the Federal Reserve (FED) are expected to temporarily boost net interest income but also reflect concerns about economic slowdown to prevent inflation from heating up again, increasing risks of loan repayment by borrowers.

Weak Loan Growth

JPMorgan Chase & Co.'s loan balance remained at $13 trillion in the second quarter, nearly flat for four consecutive quarters; Wells Fargo's average loan balance decreased to $917 billion for four consecutive quarters; Citigroup's loan balance increased by 2% to $688 billion compared to the same period last year but decreased by $1 billion from the end of 2023.

Looking ahead, potential rate cuts by the Federal Reserve may stimulate loan growth, but banks will need to offset declining interest income by issuing new loans.