The US bank published its figures for the first quarter of 2023 on Friday.
(Photo: Bloomberg)
New York, Frankfurt The major Wall Street institutions are surprisingly strong after the turmoil in the US banking system. America’s largest bank, JP Morgan Chase, reported a 52 percent jump in profit to $12.6 billion for the first quarter. The bank also posted record revenues of $38.3 billion.
The picture is similar at Citigroup and Wells Fargo: Citigroup’s quarterly profit rose by seven percent to $4.6 billion. Revenue rose 12 percent to $21.4 billion. At Wells Fargo from San Francisco, profits grew by 32 percent to five billion dollars.
Both banks benefited from sharply higher net interest income, fueled by the Federal Reserve, which has been raising interest rates steadily for over a year – most recently to the 4.75 to 5.0 percent range.
The strong results are an important signal for regulators and investors. The bankruptcies of three regional banks in March triggered a crisis of confidence. However, the large institutes have benefited from this. “Market participants were looking for signs of cracks in the US banking sector. And they are relieved not to have found any,” emphasized Opimas capital market consultant Ocatvio Marenzi.
JP Morgan shares are up 7 percent in early New York trading. Citigroup shares rose 3 percent. Wells Fargo was slightly down.
Concerned about the stability of regional banks, customers have parked deposits at Wall Street houses on a large scale. Deposits at JP Morgan rose 2 percent from the fourth quarter to $2.38 trillion. Net interest income rose 49 percent. At Wells Fargo, net interest income soared 45 percent. This is mainly due to the fact that the banks have hardly passed on the interest rate hikes by the US Federal Reserve (Fed) to savers, but are demanding significantly higher interest rates for lending.
JP Morgan also raised its forecast for the full year: the bank expects net interest income of $81 billion. In January, the institute had estimated $ 73 billion. CFO Jeremy Barnum, however, assumes that the new deposits will not necessarily stay with the bank. “Many customers are increasingly parking their money with money market funds,” he said in an interview with journalists on Friday. The trend affects all US banks. According to analyst estimates, the four major institutes alone are said to have lost deposits of almost $100 billion in money market funds in the first quarter.
Banks are expanding their risk provisions
The tense situation after the bankruptcy of the Silicon Valley Bank (SVB) in March has calmed down, according to JP Morgan boss Jamie Dimon. “The US economy remains on sound footing – consumers are still spending and businesses are in good shape.”
But storm clouds remained on the horizon. Financing conditions are expected to tighten as banks become more restrictive on lending. Overall, this leads to great uncertainty in the outlook for the coming quarters.
JP Morgan therefore increased risk provisions by 56 percent to $2.3 billion. Wells Fargo set aside a total of $1.2 billion for impaired loans. That includes $643 million in potential losses in the commercial real estate, credit card, and auto loan businesses. In the same quarter last year, Wells Fargo released 787 million in provisions. Wells Fargo was able to increase profits in the first quarter by 32 percent to almost five billion dollars, revenues grew by 17 percent to 20.7 billion dollars.
While retail banking continues to thrive — at JP Morgan, CCB’s profit rose 80 percent to $5.2 billion — its equity offering and M&A advisory business continues to falter. At JP Morgan, investment banking revenues fell 24 percent to $1.6 billion. Equity trading earnings shrank 12 percent while bond trading stagnated.
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The figures from the banks also drove the shares of European financial institutions. The Stoxx index of bank stocks climbed 2.2 percent to its highest level in four weeks. In Frankfurt, the shares of Deutsche Bank and Commerzbank jumped by almost five percent each.
Investors were relieved that the recent nervousness in the financial sector is easing, at least slightly. “The first banking results of the new earnings season suggest that US financial institutions have weathered the impact of the Fed’s tightening monetary policy better than expected,” said Stuart Cole, senior macroeconomist at brokerage firm Equiti Capital. However, investors would scrutinize the balance sheets to determine the extent to which financial institutions are exposed to recently troubled sectors such as commercial and retail real estate.
In addition to Bank of America, Goldman Sachs and Morgan Stanley, the first regional banks will also be presenting their results next week. That will give investors an indication of the size of the problems at the smaller institutions. Regional banks are important for lending. They play a key role, especially in commercial real estate. According to calculations by Goldman Sachs, they hold a good 80 percent of these loans on their books.
In view of the rising interest rates and the continuing trend towards working from home, however, office properties in particular have come under severe pressure. “It’s gotten a lot harder for regional banks to stay profitable,” said Rebel Cole, finance professor at Florida Atlantic Universityx. Rising interest rates, the threat of loan defaults and increasing demands on topics such as digital banking and cybersecurity could trigger a wave of mergers. Morgan Stanley analysts have revised their earnings forecasts for regional banks down by 20 percent. For 2024, they expect another decline of 30 percent.
With agency material
More: US money market funds are booming – and endangering the financial system from two sides.