The big American banks are still profiting from high interest rates and the resilient economy, but they see hard times on the horizon, according to an analysis from Ziarul Financiar, according to Mediafax.
Banks were able to raise interest rates on loans faster than those offered on deposits, but they began to warn their investors that they would eventually have to give in to pressure from customers and offer much higher interest rates to depositors, which which will erode profits from the Fed’s interest rate hikes.
The robust growth of the American economy has given a strong boost to the country’s largest banks, but their executives have warned that the good times are probably coming to an end, writes The Wall Street Journal.
JPMorgan Chase, Wells Fargo and Citigroup reported a combined profit of more than $22 billion in the third quarter, up more than a third from the same period last year. The combined revenues of the three banks rose 14%.
Higher interest rates make their loans more profitable, and consumers and the US economy remain surprisingly resilient even in the face of rising credit prices.
Troubled times are coming
But the number of loans that become non-performing is increasing after previous extremely low losses. American consumers are starting to use up their extra cash accumulated during the pandemic. The conflict in the Middle East, the war in Ukraine and growing government deficits add to the insecurity.
“This is probably the most dangerous time the world has gone through in decades,” warned JPMorgan chief Jamie Dimon.
The head of the largest American bank by assets showed that the war in Ukraine, as well as the attacks launched by Hamas on Israel “could have wide-ranging effects on the energy and food markets, world trade and geopolitical relations”, notes CNBC.
Beyond the military conflicts, Dimon cited the soaring national debt and “the largest peacetime fiscal deficits ever recorded.” These, the head of JPMorgan showed, increase the risks that inflation and interest rates will remain high.
Dimon recently indicated that he has warned clients about the possibility that interest rates will not only stay high, but rise significantly from now on.
difficulty
Big banks benefit from the fact that they are perceived as safe, an attribute generated by their size and by being cataloged by the authorities as having systemic importance for the American economy. They have also accumulated billions of dollars in deposits during the pandemic, easing pressure to retain clients, some of whom have migrated to higher-yielding funds.
Smaller regional banks in the US are having trouble keeping their deposits without offering customers significantly higher interest rates. Things could be worse for smaller, less diversified banks, many of which begin reporting results this week, the WSJ writes.
PNC Financial Services, the first major regional bank to release its third-quarter results, reported falling profit and revenue below estimates. The bank announced that it intends to lay off approximately 4% of its workforce.
JPMorgan Chief Jamie Dimon showed he has different views than some of his top executives on when competitive pressures might force the bank to offer higher interest rates to depositors.
Wells chief financial officer Michael Santomassimo said the bank, the fourth-largest in the US by assets, was “pleasantly surprised” that competitive pressure to raise deposit rates had not increased as quickly as expected, but warned that “at some point this will happen”.
BlackRock executives expect a growing number of depositors to shift their money from bank deposits to money market funds and bonds once they become convinced that the Fed has stopped raising interest rates, according to the Financial Times.
Solid bank profits are a further sign that the US economy continues to defy predictions made at the start of the year that a recession was imminent. Credit card transactions were up 8% in the third quarter for Citi. Both JPMorgan and Wells Fargo have reduced the amounts they set aside for potential loan losses.
2023-10-21 21:17:17
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