Frankfurt US banks are benefiting from the US Federal Reserve’s (Fed) interest rate hikes. America’s largest financial institution, JP Morgan Chase, reported net interest income of $20.2 billion – a new record and up 49 percent from a year earlier.
Interest income also rose significantly at Bank of America, Citigroup and Wells Fargo, which also presented their figures for the fourth quarter on Friday, helping Wall Street houses. compensate for weaknesses in other areas.
The Fed raised interest rates at a record pace last year to a range of 4.25 to 4.5 percent. Dana Peterson, chief economist at the analysis firm Conference Board, assumes that at least two interest rate hikes of 0.25 percentage points each could follow this year.
The banks benefit from the fact that although they charge higher interest rates on loans, they continue to pay hardly any interest on deposits, as Octavio Marenzi from the capital market consultancy Opimas points out.
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JP Morgan was able to increase profits by six percent in the fourth quarter. The largest US bank achieved a surplus of 11 billion US dollars from October to December after 10.4 billion a year earlier. Revenue rose 18 percent to $34.6 billion.
The US industry leader thus generated earnings of $3.57 per share, beating the expectations of analysts, who, according to data from Refinitiv, had expected an average of $3.07. For the full year 2022, the bank reported annual profits of $37.7 billion Dollar.
JP Morgan CEO Jamie Dimon pointed to a mixed picture this year. “The US economy remains strong,” he said. But the final consequences of the geopolitical challenges, rising inflation and monetary policy are not yet foreseeable. “We remain vigilant and prepared for anything.”
The institution has set aside $1.4 billion for non-performing loans. According to CFO Jeremy Barnum, the bank now expects a mild recession in the fourth quarter, with the unemployment rate rising to 4.9 percent. It is currently still surprisingly low at 3.5 percent.
In June, Dimon caused a stir with a forecast that an economic hurricane was heading for the global economy. In principle, nothing has changed about that, Dimon said in an interview with journalists. Nevertheless, consumers are currently still spending money and companies are also in good shape.
“The default rates for loans are unusually low,” emphasized Marenzi. This applies to private as well as corporate loans and gives the banks a tailwind.
Bank of America increases profit in fourth quarter
Bank of America was also able to increase its profit at the end of the year. The bottom line is that the second largest US money house earned $7.1 billion (€6.6 billion) in the final quarter – around two percent more than a year ago. Revenue rose 11 percent to $24.5 billion.
Like other institutes, the bank benefited from the brisk activity on the financial markets. There, fears of inflation and recession caused many investors to restructure their portfolios, which boosted trading in securities.
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Profit slump at Citigroup
The US financial group Citigroup earned significantly less in the final quarter despite a strong trading business. In the three months to the end of December, net income fell 21 percent year-on-year to $2.5 billion, the money house announced on Friday in New York. The main reason was higher loan loss provisions in the event of a sustained economic downturn and increasing loan defaults.
In day-to-day business, on the other hand, income increased significantly. Citi increased total earnings by 6 percent to $18.0 billion.
All major financial institutions continue to suffer from the slump on the capital market. After the war in Ukraine and rising interest rates, business with IPOs and mergers and acquisitions plummeted across the industry. Bankers must be prepared for significant cuts in their bonuses. There were also some layoffs. Goldman Sachs even wants to part with 3,200 bankers.
Goldman and Morgan Stanley will report their results next Tuesday. However, Goldman already announced on Friday that a large part of its retail banking business had made heavy losses. The minus since 2020 is said to be a good three billion dollars. Among other things, it is about the online bank Marcus and the credit card business.
With the initiative, CEO David Solomon wanted to open the bank to a broader range of customers. But the move turned out to be more expensive than planned. Solomon has already announced that he will scale back ambitions in this area.
Goldman Sachs stock was down 1.6 percent in the early hours of trading in New York. The papers of JP Morgan, Bank of America and Citigroup were similar.
With material from dpa and Reuters
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