Although the past month was difficult for part of the banking industry, some of the largest US lenders on Friday reported exceptional profits that exceeded expectations.
JPMorgan Chase, Citigroup and Wells Fargo were among the banks that showed strong results in their first-quarter reports released this Friday, which appears to be a sign of good timing for the banking system, or at least for its largest institutions. from the country.
Banks' profits were boosted by higher interest rates, which allowed them to charge more for loans than they do for deposits, among other factors.
The collapse of Silicon Valley Bank and Signature Bank in March thus appears to have strengthened the largest banks by driving clients towards these institutions that may be perceived as more stable.
But there are more possible factors: some registered an increase in consumption with credit cards, with unpaid balances at higher and higher interest rates.
“These were the most watched bank earnings announcements in more than a decade, with market participants scrutinizing the results for signs of cracks in the US banking sector.
Those analysts who were looking for signs of the banking crisis were very relieved to find none,” Octavio Marenzi, CEO of consultancy Opimas LLC, said in an email to The Associated Press.
Millions more in profit
JPMorgan Chase & Co.
posted a 52% increase in profit.
The largest bank in the country by assets specifically had a profit of $12.620 million, compared to the $8.280 million obtained in the same period of the previous year.
On a stock basis, the bank earned $4.10 per share, up from $2.63 a year ago, beating analysts' expectations.
[These economic stimuli are not taxable in 2023]
The way in which the Americans are using their cards, and without paying their consumptions, helped in part to improve the income of the banks.
Jenny Kane/AP
Most of the earnings growth came from higher interest rates.
The bank's net interest income was $20.8 billion in the quarter, up 49% from last year.
“
We had a rough patch in March, but things look better now
,” JPMorgan chief financial officer Jeremy Barnum told The New York Times.
For its part, Wells Fargo said Friday it earned $5 billion, or $1.23 per share, in the three months ended March 31, beating analyst projections by 10 cents per share.
Revenue of $20.7 billion beat Wall Street's target of $20.1 billion, an increase of 17%.
Wells' earnings increased 32% over last year.
On Wall Street there was good news for other financial giants.
Citigroup
rose 4.5% after it also reported stronger-than-expected earnings -- up 12% from a year earlier.
BlackRock
, the world's largest asset manager, rose 2.7% after its earnings also beat forecasts.
PNC Financial
, the sixth largest bank in the country, said for its part that the volatility of the industry ended up reinforcing its strengths.
It just so happens that the so-called super regional lender is bigger and more diversified than its smaller rivals.
Its net income increased to $1.7 billion, more than 18% over the prior year.
There are still clouds on the horizon
"What crisis?" UBS analysts headlined their report after JPMorgan, Wells and PNC reported their results.
However, many are cautious when it comes to analyzing the future.
“The US economy remains on a generally healthy footing: consumers continue to spend and have strong balance sheets, and businesses are in good shape.
However, the storm clouds we have been monitoring for the last year remain on the horizon, and turmoil in the banking industry adds to these risks,” said Jamie Dimon, CEO of JPMorgan.
These measures can make a difference in your pocket due to the increase in interest rates
March 22, 202301:28
The banking crisis was very particular, but financial conditions are likely to tighten as lenders, including JPMorgan, turn more conservative.
“
Eventually we are going to have a recession, but that can be delayed a bit
,” he told The New York Times.
Sectors of the economy have already begun to slow under the weight of higher interest rates, raising concerns that a recession is likely.
Stocks fell on Wall Street amid a whirlwind of a variety of forces, including strong profits for financial giants as well as concerns about interest rates and the strength of the economy.
The interest rate push
Wells Fargo and other banks have benefited from the Federal Reserve's aggressive interest rate hikes as the central bank tries to rein in the highest inflation in four decades.
Fed officials have signaled they may raise the central bank's main lending rate another quarter point this year, taking it slightly above 5%.
[The Federal Reserve expects a mild recession at the end of 2023]
Others do not benefit, such as the financial market, while the shares were down.
The S&P 500 was down 0.6% in afternoon trade after giving up a morning gain.
The Dow Jones Industrial Average was down 217 points, or 0.6%, at 33,810, as of 1:24 pm ET, while the Nasdaq Composite was 0.9% lower.
Stocks are still on track for a weekly gain, built in part on hopes that the Federal Reserve will soon end its barrage of rate hikes as inflation cools.
High interest rates can stifle inflation, but only by hurting the economy, increasing the risk of a recession and dragging down investment prices.
A senior Fed official dashed those hopes on Friday after saying inflation remains too high and more increases may be needed.
More deposits and more card expenses
The
deposits
at big banks have been falling for several quarters as consumers spent their pandemic savings and businesses turned to their stored cash to pay bills.
But with the collapse of Silicon Valley Bank and Signature Bank, companies
have withdrawn their funds from smaller banks and moved them to larger banks
, which are considered “too big to fail” and have implicit government backing.
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On a call with reporters, JPMorgan Chief Financial Officer Jeremy Barnum said most of the new deposits were from new business and business bank accounts opened last month.
PNC's deposits also grew, albeit slightly, last quarter.
This was not a determining factor for everyone.
For Citigroup, the bank's loan book was largely unchanged and deposits fell 3% from the prior quarter.
JPMorgan also continued to benefit from consumers shifting from saving to spending.
Credit card spending
is up 13% from a year ago, and now more customers are carrying a balance instead of paying off their credit cards, so the bank is making money processing transactions and interest on balances.
In the case of Well Fargo, its credit card revenue
increased 3%
to $1.3 billion in the latest quarter, the company reported, while personal loans rose 9% to $318 million.
“Consumers and many of our corporate clients came into this environment in a very strong position,” Michael P. Santomassimo, the bank's chief financial officer, told The New York Times.
"Consumers continue to spend," he added.
Less mortgage loans
Wells, until recently the nation's largest mortgage lender, set aside $643 million for potential credit losses, specifically commercial real estate loans, credit cards and auto loans.
The bank has said it plans
to slash
its home lending business.
Higher interest rates have cooled the housing market, and Wells said home loans fell 42% from the same quarter last year.
The greats who helped in the crisis
After the failure of Silicon Valley Bank and Signature Bank, JPMorgan helped form a consortium of other big banks, such as Wells Fargo, to prevent First Republic Bank from going under next.
The group of banks invested $30 billion in uninsured deposits at First Republic, which appears to have at least bought the midsize bank time to repair its balance sheet and perhaps find a buyer.
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Charlie Scharf, the bank's chief executive, told The New York Times that Wells Fargo was "glad to have been in a strong position to help support the US financial system."
during the recent industry turmoil.
"The Fed's challenge has been to cool inflation without deep freezing the economy in the process," Mike Loewengart, head of model portfolio construction at Morgan Stanley's Office of Global Investments, told The Associated Press.
