(Added investor quote to paragraph 3 and analyst quote to last paragraph)
Big U.S. banks reported falling profits Friday in a choppy fourth quarter clouded by special charges and job cuts, with signs that rising revenue from high interest rates is slowing. is fading and some consumer loans are starting to sour.
Nonetheless, JPMorgan JPM.N , Wells Fargo WFC.N , Bank of America BAC.N , and Citigroup CN , the nation’s largest lenders, struck an upbeat tone on the economy, noting that U.S. consumers remained resilient even as defaults on consumer loans were starting to return to pre-pandemic levels.
“This is a period of credit normalization, but banks have been well ahead in terms of reserves,” said Mac Sykes, portfolio manager at Gabelli Funds, which owns shares of JPMorgan, Bank of America and Wells Fargo. “The determining factor will be how the economy fares this year, but the big banks are well placed to weather any stress
The Fed raised rates last year to try to control inflation. But with price increases slowing, the potential pace of interest rate cuts this year and whether the economy will avoid a recession are the biggest questions weighing on markets.
Jamie Dimon, chief executive of JPMorgan Chase, the largest U.S. bank and a bellwether of the economy, said consumers continued to spend and markets expected a soft landing, but he warned that spending government policies on green energy, health care and the military could continue to drive up prices.
U.S. consumer prices rose more than expected in December as Americans paid more for housing and health care.
“This could lead to higher inflation and higher rates than markets expect,” Mr. Dimon said. He also warned that Fed rate cuts could drain liquidity from the system and that wars in Ukraine and the Middle East could cause global disruption.
“These significant and somewhat unprecedented forces cause us to remain cautious,” he added.
Wells Fargo Chief Financial Officer Mike Santomassimo also warned that the rate cuts were creating more uncertainty in the market than usual.
JPMorgan gained 0.9% and Citi fell 1.2%, while Bank of America fell 2.4% and Wells Fargo fell 2.3%.
Banks set aside more than $8 billion to bail out the Federal Deposit Insurance Corporation’s (DIF) deposit insurance fund, which took a $16 billion hit after Silicon Valley Bank’s collapse and two other lenders last year.
Citi, America’s most international bank, had a disastrous quarter, with a surprise loss of $1.8 billion because of FDIC charges and because it stockpiled cash to cover currency risks in Argentina and in Russia.
Citi will cut 20,000 jobs over the next two years, its chief financial officer, Mark Mason, said. Wells Fargo also cut jobs, reporting severance payments of $969 million as well as a $1.9 billion charge to the FDIC.
Beyond these special charges, the basic income picture is mixed.
Last year’s high rates boosted banks’ net interest income (NII), the difference between what banks earn on loans and what they pay to depositors, but this revenue driver appears to be fading. running out of steam as the Fed suspends its hikes and banks pay more to hold these deposits.
Bank of America’s profit fell by due to the DIF charge, a one-time impact on how it indexes certain transactions, and a 5% decline in its NII as the bank spent more to retain customer deposits and loan demand remained subdued due to high interest rates.
Among the four banks, Wells Fargo was the only bank to post an increase in profits, thanks to cost reductions, beating analysts’ expectations. But it warned that its net profit for 2024 could be 7% to 9% lower than the previous year.
JPMorgan also performed well. Its quarterly profits fell, but the Wall Street giant posted a record annual profit of $49.6 billion and a 19% jump in net operating income.
(“My biggest concern is whether) has already benefited from interest rates,” David Wagner, a portfolio manager and equity analyst at Aptus Capital Advisors, which owns the four banks, wrote in an email to Reuters.
LOANS THAT TURN INTO VINEGAR
All lenders have set aside more money to cover bad debts and delinquencies, or debts that are unlikely to be recovered, on some consumer loans have increased.
At Bank of America, which has the largest consumer bank, delinquencies rose from $931 million in the third quarter to $1.2 billion in the fourth quarter, mainly for credit cards and office real estate.
Consumer delinquencies and delinquencies declined during the pandemic as government stimulus and business closures boosted consumer savings.
Jeremy Barnum, chief financial officer of JPMorgan Chase, said the bank’s consumer credit metrics, including credit cards, are now all back to normal. Citi also said credit costs in the U.S. consumer banking division were increasing due to the “continued normalization” of non-performing loans in credit cards.
Credit card loss rates are still below long-term averages, according to rating agency Fitch.
However, some analysts said they would like to see banks set aside more cash in case trends worsen.
” Chris Marinac, director of research at advisory bank Janney Montgomery Scott, said: “There are still fears of a slow deterioration in credit. “I’m not very worried, but I prefer that banks build reserves in this environment
2024-01-12 17:43:06
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