The two banks both have global reach and were able to grow revenues at greater rates than Wells Fargo in the past quarter. The growth in revenue was primarily driven by asset management and investment banking activities.
JPMorgan Chase & Co. (NYSE:JPM) reported 14% year-over-year growth in net-revenue which is solid, and implies that the bank may be able to sustain higher growth rates in future accounting periods. Likewise, Citigroup Inc (NYSE:C) reported 11% year-over-year growth in net revenue. The rally in stock prices had a favorable impact on earnings as both banks were able to generate solid growth in asset management fees.
Analysts on a consensus basis anticipate JPMorgan Chase & Co. (NYSE:JPM) to grow earnings by 46.58% for the current fiscal year. Comparatively, Wells Fargo & Co (NYSE:WFC) is projected to grow earnings by 11% and Citigroup by 22.50% for the same period. Citigroup is projected to grow the most out of the three, as analysts are willing to estimate 14.6% growth per year over the next five years. This is primarily driven by the fact that Citigroup has the lowest profit margin of the three at 11.81%, and could generate substantial rates of growth just by managing its costs better.
Conclusion
It certainly seems that Wells Fargo & Co (NYSE:WFC) got the short end of the stick. The consumer banking giant won’t be generating significant growth rates going into 2014. It may be facing interest rate headwinds that will lower its profitability over the short-term, but these headwinds will have the eventual impact of producing higher profit margins further in the future.
The universal banks (JPMorgan Chase and Citigroup) may have the most upside going forward. This is driven by the fact that JPMorgan Chase and Citigroup can depend on fee income from asset management and investment banking activities to spur higher rates of growth.
Of the three, Citigroup has the most upside as it has the lowest amount of profitability. Given enough time, I believe that Citigroup will manage its costs better and produce more earnings surprises further down the road.
The article Wells Fargo Gets the Short End of the Stick originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Citigroup Inc (NYSE:C), JPMorgan Chase & Co (NYSE:JPM)., and Wells Fargo. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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