Earnings season is here again, and market participants have eagerly waited for signs of how corporate America performed during the key holiday quarter. Even with international geopolitical issues hanging over the market, investors want to see whether their generally favorable picture of how things are going with the U.S. economy matches up with reality for the companies on the front lines. As of 11 a.m. EST, the Dow Jones Industrial Average (DJINDICES:^DJI) climbed 46 points to 28,953. However, the S&P 500 (SNPINDEX:^GSPC) lost 5 points to 3,283, and the Nasdaq Composite (NASDAQINDEX:^IXIC) fell 26 points to 9,247.
Financial institutions typically lead off earnings season every quarter, and two banks gave different readings on the current state of the industry. Wells Fargo (NYSE:WFC) continued to struggle after years of controversy, but Citigroup (NYSE:C) was able to deliver stronger results that made shareholders more confident about its future.
All’s not well at Wells
Shares of Wells Fargo were down 4% after the San Francisco-based banking giant released its fourth-quarter financial results. For those hoping for a long-awaited turnaround, Wells Fargo’s report was just the latest in a series of disappointments.
Image source: Wells Fargo.
Wells saw its total revenue decline more than 5% to $19.9 billion, capping a year in which the bank’s top line eased lower from 2018 levels. Net income took an even bigger hit, falling by more than half to $2.9 billion and working out to $0.60 per share. Once again, legal issues weighed on performance, as Wells had to take $1.5 billion in litigation accruals on a variety of different matters.
CEO Charlie Scharf tried to maintain a positive attitude, noting his confidence that he’ll be able to restore the bank’s regulatory reputation through more urgent compliance efforts. Yet Scharf also noted that Wells’ cost structure is currently too expensive, and he sees further work needed in order to boost growth. Moreover, the CEO was reluctant to suggest a time frame for a full turnaround.
Wells Fargo has largely gotten left behind in the recent run-up for the banking sector, as investors continue to worry about the permanent damage its reputation has suffered because of multiple controversies in past years. Unfortunately, Wells still has more work to do before it can reassure shareholders that its problems are all in the past.
Citi gets a boost
Meanwhile, shares of Citigroup were higher by 2%. The New York-based bank fared better than Wells in its fourth-quarter financial report, seeing superior signs of growth and having more promising prospects ahead.
Citi reported 7% revenue growth for the quarter compared to the previous year’s Q4, resulting in double-digit percentage gains in net income. Earnings per share soared 31%, with a rising bottom line combining with a dramatic drop in outstanding shares to boost the per-share metric. Citi also benefited from a one-time tax issue that sent earnings higher.
Citi saw strength in most of its business, with year-over-year sales increases in consumer banking and institutional clients. In particular, the company pointed to digital deposit growth, strength in branded credit cards, and rising market share in investment banking as contributing factors to its performance. Geographically, Latin America and Asia led revenue growth, but performance was solid worldwide.
Investors have watched the banking sector carefully in recent quarters to see what it’s signaling for the future. Although reports from these two banks were mixed, there are positive signs in the industry that could help support further gains for the stock market in 2020.