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Biggest U.S. Banks Report Bumper Profits Amid Industry Turmoil Biggest U.S. Banks Report Bumper Profits Amid Industry Turmoil
(about 4 hours later)
Despite tenuous times for the banking industry, some of the largest U.S. lenders reported banner first-quarter earnings on Friday that easily exceeded investor expectations. And even as they warned that credit could become more scarce and expensive, they said that the economy was proving resilient so far. The country’s largest banks escaped the crisis that just weeks ago brought down two midsize U.S. lenders, unnerving regulators and depositors. If anything, the tumult has helped those giants rake in bumper profits.
The banks’ earnings were bolstered by higher interest rates, which allowed them to charge more for loans above what they pay out on deposits. The robust reports were also a reflection that the collapse of Silicon Valley Bank and Signature Bank last month appear to have strengthened the biggest banks by driving customers toward larger institutions perceived to be more stable. JPMorgan Chase, Citigroup and Wells Fargo on Friday unveiled banner earnings for the first three months of the year, making billions more than they and analysts had projected. Even as the banks warned that the economy was on tenterhooks and that credit could become scarce, they said they would keep making loans and expected stronger profits if interest rates continued to rise.
JPMorgan Chase, the nation’s largest bank, reported revenue that rose virtually across the board, helping it pull in $12.6 billion in profit, a 52 percent jump from the same quarter a year earlier. The dynamic reflects that, in general, rising interest rates — which the Federal Reserve has been using to combat high inflation — allow banks to charge borrowers more for loans compared to what they pay depositors. The robust earnings reports Friday also signaled that the crisis caused by the collapse of Silicon Valley Bank and Signature Bank last month has strengthened the biggest U.S. banks.
The bank said its loans were steady and customer deposits rose slightly in the first quarter from the previous quarter, with inflows picking up in particular after smaller competitors saw depositors pull cash en masse. Most smaller, regional banks, some of which face perilous futures, will not report results until later this month. The good times for their largest rivals, however, is an ominous reminder that many bank customers have suddenly developed a strong preference for larger institutions that they believe to be safer and more stable.
“We had a rough spell in March, but things are looking better now,” said JPMorgan’s chief financial officer, Jeremy Barnum. JPMorgan, the nation’s largest bank, reported strong revenue in most parts of its various businesses, helping it post a profit of $12.6 billion in the first quarter, 52 percent more than in the same period a year earlier.
The bank’s chief executive, Jamie Dimon, who has taken a leading role in bailing out smaller lenders, said the banking crisis was distinct, but that financial conditions were likely to tighten as lenders, including JPMorgan, become more conservative. “We are going to eventually have a recession, but that may be pushed off a bit,” he said. The bank said its loans were steady and customer deposits rose slightly in the quarter from the last three months of 2022, with inflows picking up in particular after smaller depositors pulled their money out of smaller banks.
JPMorgan’s chief executive, Jamie Dimon, who has taken a leading role in bailing out smaller lenders, said the banking crisis was distinct, but that financial conditions were likely to tighten as lenders, including his own company, become more conservative.
“We are going to eventually have a recession, but that may be pushed off a bit,” he said.
JPMorgan set aside roughly $2.3 billion to protect against borrowers falling behind on their loans. That was up from $1.5 billion in the same quarter last year, largely because of a somewhat worse economic outlook, the bank said.JPMorgan set aside roughly $2.3 billion to protect against borrowers falling behind on their loans. That was up from $1.5 billion in the same quarter last year, largely because of a somewhat worse economic outlook, the bank said.
Citigroup, the country’s third-largest lender, reported a profit of $4.6 billion in the first quarter, up 7 percent from the same period last year and well ahead of forecasts. Revenue jumped 12 percent from the previous year, which came “despite the tumultuous environment for banks,” Jane Fraser, the bank’s chief executive, said in a statement. Mr. Dimon’s view was underscored by economic data released on Friday: Retail sales fell 1 percent in March from the month before, the Commerce Department said, a weaker showing than analysts had expected.
The bank’s loan book was roughly unchanged and deposits fell 3 percent from the previous quarter. Staff at the Federal Reserve project that general banking turmoil will spur a “mild” recession later this year.
Wells Fargo also surpassed analysts’ expectations, reporting a profit of nearly $5 billion in the first quarter, a 32 percent increase from a year ago. Rising interest rates lifted the bank’s earnings as its loan portfolio grew, led by gains in personal lending and higher credit-card balances. Still, bank executives on Friday mostly expressed optimism about their firms’ prospects in conference calls to discuss their quarterly results.
There was little sign of nervous depositors fleeing to the safety of the lender, the nation’s fourth-largest bank. The average deposits at Wells Fargo dropped $24 billion, or 2 percent, from the previous quarter. Loans were little changed. Citigroup, the country’s third-largest lender, reported a profit of $4.6 billion in the first quarter, up 7 percent from the same period last year and well ahead of the expectations of Wall Street analysts. Revenue jumped 12 percent. As for the regional bank tumult, Jane Fraser, Citigroup’s chief executive, said she did not see the those issues as “pervasive throughout the broader banking industry.”
Charlie Scharf, the bank’s chief executive, said Wells Fargo was “glad to have been in a strong position to help support the U.S. financial system” during the industry’s recent turmoil. The bank’s top priority, he said, remains improving its internal controls; the bank has for years been battered by regulators and has paid billions in fines for a wide variety of misdeeds. The bank’s loan book was roughly unchanged and deposits fell 3 percent from the previous quarter, though credit card lending was up 7 percent from the same quarter a year earlier. UBS analysts said Citigroup, which has been slimming its international operations, still had “more wood to chop.”
Analysts are closely watching banks for signs of tightening lending that could lead to a credit crunch, but Wells Fargo “hasn’t substantially changed our credit risk appetite” over the last quarter, said Michael P. Santomassimo, the bank’s chief financial officer. At Wells Fargo, “the majority of our businesses remain strong,” Charles Scharf, the bank’s chief executive, told analysts. Rising interest rates lifted the bank’s earnings as its loan portfolio grew, led by gains in personal lending and higher credit card balances.
“Consumers and many of the businesses that are our clients came into this environment in a very strong position,” he said. “Consumers continue to spend.” There was little sign of nervous depositors fleeing to the safety of the lender, the nation’s fourth-largest bank. Deposits at Wells Fargo dropped $24 billion, or 2 percent, from the previous quarter. Loans were little changed.
PNC Financial, the country’s sixth-largest bank, said that the industry volatility ended up playing to its strengths. Although it has been swept up in the turmoil surrounding midsize banks, PNC, a so-called super regional lender, is bigger and more diversified than its smaller rivals. PNC played savior in last month’s rescue plan for the ailing First Republic Bank, putting $1 billion in deposits into the bank as part of a $30 billion deal engineered by Mr. Dimon. Delinquencies and write-offs of bad loans edged upward, and the bank increased its reserve for future losses, citing commercial real estate — especially loans backed by office buildings — as well as credit cards and auto loans as areas of potential weakness. Consumer spending began to soften late in the quarter, Mr. Scharf said.
PNC’s deposits grew slightly last quarter. Its net income rose to $1.7 billion, up more than 18 percent from the previous year. Analysts are closely watching for signs of tightening lending that could lead to a credit crunch. Mr. Scharf said Wells Fargo was “taking incremental actions to tighten credit on higher-risk segments,” but he did not anticipate a broad pullback.
Investors welcomed the batch of bank reports, their first look inside the books of the industry bellwethers since the failure of Silicon Valley and Signature Bank, sending share prices higher. JPMorgan’s stock jumped more than 6 percent in early trading, leading the gains among banks. Ms. Fraser of Citigroup said she was worried that regulatory changes in the wake of the smaller banks’ turmoil, which is likely to include demands that banks keep more cash on hand, “would exacerbate any credit tightening.”
PNC Financial, the country’s sixth-largest bank, said on Friday that the industry volatility ended up playing to its strengths. Its deposits grew slightly last quarter and profit rose to $1.7 billion, up more than 18 percent from a year earlier.
Although it has been swept up in the turmoil surrounding midsize banks, PNC, a so-called super regional lender, is bigger and more diversified than most regional financial institutions. PNC played a part in last month’s rescue plan for the ailing First Republic Bank, depositing $1 billion into the bank as part of a $30 billion deal engineered by Mr. Dimon.
Investors mostly welcomed the earning reports by the big banks, their first look inside the books of the industry bellwethers since the failure of Silicon Valley and Signature Bank. JPMorgan’s stock was up about 7 percent around 1 p.m.
“The banking system is very sound — it’s stable,” Lael Brainard, director of President Biden’s National Economic Council, said this week at an event in Washington.“The banking system is very sound — it’s stable,” Lael Brainard, director of President Biden’s National Economic Council, said this week at an event in Washington.
But staff at the Federal Reserve are projecting that general banking turmoil will spur a “mild” recession later this year, according to minutes of a policymakers’ meeting last month. Retail sales in March fell 1 percent from the month before, data released on Friday showed, which unlike the big banks’ earnings reports was weaker than analysts expected. But some smaller banks could still struggle as customers rethink where they keep their money.
Another larger financial institution that reported its first-quarter earnings, the investment management giant BlackRock, said it had been on the receiving end of $40 billion from clients looking to better manage their cash.
“We expect to shift from deposits to money market funds to be a longer-term trend,” Laurence D. Fink, the company’s chief executive, said during a conference call with analysts, “and are actively working with clients to help them diversify and enhance the yield they’re earning on their cash.”
Joe Rennison contributed reporting.