The heavyweights of the US banks reaped unexpected profits from an increase in interest payments for loans in the first quarteravoiding an industry shakeup and seizing the opportunity to reserve billions of dollars in case of difficulties if the economic outlook darkens.
Earnings for the first quarter of JPMorgan Chase & Co , Citigroup Inc and Wells Fargo & Co outperformed Friday the Wall Street expectationssince the spent of consumers and companies held up despite the rate hike, although all three saw signs of a slowdown and made provisions.
Mike Mayanalyst of Wells Fargostated in a note that “Goliath is winning”, highlighting the growth, scale and resistance in an “exceptionally strong quarter” for JPMorgan, which it called a “port in the storm” during the recent banking sector turmoil.
The banks are hoarding emergency funds in the face of fears of an economic slowdown caused by the aggressive interest rate hikes of the United States Federal Reserve to control the inflationas well as the recent turmoil caused by the failure of two midsize banks.
JPMorgan CEO, Jamie Dimondwarned that while the US economy remains robust, the recent banking crisis with the sudden bankruptcy of Silicon Valley Bank (SVB) and Signature Bank last month could make the lenders become more conservative and at the same time, affect spending of consumers.
“The dark clouds that we have been watching for the past year remain on the horizon, and turmoil in the banking sector adds to these risks,” Dimon said.
One area where big banks have had the most difficulty turning a profit in 2023 has been investment bankingwhich was reflected in the JPMorgan business with a 24% drop in unit revenue.
Global mergers and acquisitions (M&A) activity contracted to his lowest level in more than a decade in the first quarter, as the Rising interest rates, high inflation, and fears of a recession dampened the appetite for big business.
JPMorgan beat market expectations with a 52% increase in earnings, to $12.62 billion, or $4.10 per share, in the three months to the end of March, while its loan-loss provisions rose 56% to $2.3bn.
The net interest incomewhich measure a bank’s profit from granting loans, increased by 49%to 20.8 billion dollars.
Citigroup also exceeded Wall Street forecasts, also helped by the effects of the more restrictive monetary policy of the Fed, despite the fact that set aside $241 million to cover possible losses for loans, which compares with the $138 million it released a year ago.
For his part, Wells Fargo set aside $1.21 billion in the quarter to cover possible loan losses, compared to the $787 million it released a year earlier.
In another key part of the financial services industry, BlackRock Inc reported an 18% drop in its first-quarter profits, but it beat analysts’ estimates as investors continued to pour money into its funds.
Based in New York, BlackRockthe world’s largest asset manager, earning most of its income from fees for investment management and advisory services, closed the first quarter with $9.1 trillion in assets under managementless than 9.57 billion a year earlier, but more than 8.59 billion in the fourth quarter.
Source: Ambito
