There Was No Crisis for JPMorgan and Its Big-Bank Peers

Demonstrators participate in a 'Stop Dirty Banks' protest outside JP Morgan Chase headquarters in New York City, U.S., March 21, 2023.  REUTERS/Caitlin Ochs (REUTERS)
Demonstrators participate in a 'Stop Dirty Banks' protest outside JP Morgan Chase headquarters in New York City, U.S., March 21, 2023. REUTERS/Caitlin Ochs (REUTERS)

Summary

  • JPMorgan, Wells Fargo, Citigroup post profit and revenue gains after turmoil last month

It’s great to be a megabank, even in a banking crisis.

JPMorgan Chase & Co., the largest bank in the U.S., is thriving in a world of rising interest rates that sank some of its smaller peers, posting a blowout 52% increase in first-quarter profit and record revenue.

Profits also rose at Citigroup Inc. and Wells Fargo & Co. All three big banks were buoyed by charging higher rates on loans without increasing the rates paid to depositors by as much. They also benefited from panicky depositors fleeing midsize banks after the collapses last month of Silicon Valley Bank and Signature Bank raised customers’ alarms about the health of regional banks.

Though the government stepped in to broadly guarantee deposits at SVB and Signature Bank, many customers decided over the past weeks that they would rather keep their money in banks believed to be too big to fail in the first place.

JPMorgan estimated Friday that it picked up about $50 billion in new deposits following March’s bank failures, though executives cautioned that they might not stick. Citigroup attracted nearly $30 billion in deposits in those weeks, mostly from midsize businesses, its finance chief said. Wells Fargo also said it gained deposits.

Together the three banks reported more than $22 billion in profits, up by more than a third compared with a year ago. Combined revenue was more than $80 billion, up 19% from a year ago. All three banks beat Wall Street expectations for per-share earnings and revenue.

JPMorgan’s stock jumped 7% Friday, on pace for its biggest daily gain since 2020. Citigroup rose 4%. Wells Fargo slipped less than 1%.

Filings/WSJ
View Full Image
Filings/WSJ

The rate environment today is vastly different than it was a year ago. The Federal Reserve recently lifted its benchmark rate to a range between 4.75% and 5%. For most of the first quarter of 2022, it was essentially zero.

The rapid rise in rates over the past year, meant to cool inflation, ultimately felled Silicon Valley Bank and badly damaged several others.

Yet they were a boon for the big banks, which were able to rapidly increase the amount they charge for loans to consumers and corporate giants. The glut in deposits they have collected over the past several years means they aren’t under as much pressure to increase deposit rates as some smaller banks.

The difference is minting revenue for them.

JPMorgan’s net interest income—what it makes on loans minus what it pays depositors—rose 49% to a record $20.71 billion. At Wells Fargo, it rose 45% and at Citigroup it was up 23%, both to more than $13.3 billion. For 2023, JPMorgan now expects to earn around $81 billion in one measure of net interest income, an increase of $7 billion from its forecast three months ago.

The gains showed up throughout their results. JPMorgan’s consumer business boomed with profit up 80% from a year ago, while its businesses catering to medium-size businesses and wealthy individuals also benefited. At Citigroup, revenue from the business managing global cash for multinational clients rose 31%, while tradingin global interest rates and currencies rose 13%.

Still, the big banks’ rosy results don’t mean all is well. Concerns about the health of the broader economy persist, with the possibility for an indefinite state of above-normal inflation among the biggest risk factors.

The banks had to pay more for funding, which will likely be even more damaging for the smaller banks that start reporting earnings next week. Executives said recession chances have increased.And with some institutions like First Republic Bank still in trouble, the banking turmoil could make a broader economic downturn more likely.

JPMorgan, Wells Fargo and Citigroup all built up their rainy-day funds in the first quarter. Together, the three banks set aside nearly $2 billion for potential bad loans. Wells Fargo said its stash partly reflected an increase for commercial real-estate loans, particularly office loans, which have been under pressure throughout the industry.

“We expect to see more stress over time," Wells Fargo Chief Financial Officer Mike Santomassimo said on a call with analysts, referring to the office market.

What’s more, clients big and small are battening down their own hatches. Mortgage underwriting has collapsedin the face of high interest rates. Investment banking and underwriting remain slow. Trading revenue at JPMorgan and Citigroup slipped.

More Americans started to fall behind on car loans and credit cards last year, according to the New York Fed, pressured by interest rates and higher prices on staples like food and gasoline. At all three banks, credit-card delinquencies ticked up from a year ago, and more borrowers carried over balances each month.

The odds of recession have risen, said Citigroup finance chief Mark Mason, though the bank expects any downturn to be mild.

“What’s going to matter is how mild or how severe the recession is," he told reporters. “When you look at the economic indicators, that’s still tough to tell."

In minutes released this week, the Fed disclosed that its staff forecast last month that the U.S. economy could enter a recession this year. Fed officials said last month that the bank turmoil is expected to lead to a pullback in lending, which would slow economic growth. The big banks said Friday they weren’t materially changing their own lending plans.

“I wouldn’t use the word credit crunch," JPMorgan Chief Executive Jamie Dimon said on a call with analysts.

Despite the windfall from some smaller-bank customers, deposits are becoming less plentiful and more expensive. The stress at banks has prompted some customers to move their money to Treasurys and money-market funds.

Between the end of December and the end of March, deposits rose at JPMorgan, but fell at Citigroup and Wells Fargo as businesses and wealthy customers moved their money in search of higher rates.

Wells Fargo said it could continue to see “moderate" declines in overall deposits in the coming months as banks compete for customers. JPMorgan expects some of the inflows it got in March to leave the bank later this year.

“By definition, these are somewhat flighty deposits because they just came into us," said Jeremy Barnum, JPMorgan’s finance chief, on a call with analysts. “It’s prudent and appropriate for us to assume that they won’t be particularly stable."

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

topics

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App