Top American Banks Exceed Earnings Expectations On Higher Interest Rates

Top American banks delivered healthy quarterly profit gains on Friday, beating analyst forecasts as the sector's biggest names emerged unscathed from the turmoil hitting smaller lenders, Asia Nikkei reported.

JPMorgan Chase, the country's largest bank, reported a $12.6 billion net profit for the first quarter of 2023, up 52 per cent from a year earlier. Earnings per share jumped 56 per cent to $4.10.

The results gave the first indicator of how JPMorgan and its peers are faring since the March failures of midsize lenders Silicon Valley Bank and Signature Bank.

Citigroup's $4.6 billion and Wells Fargo's $5 billion in profits were also improvements over the first quarter of 2022, as were earnings per share for both banks, Asia Nikkei reported.

JPMorgan Chase shares rose over 7 per cent. Citigroup gained nearly 5 per cent, while Wells Fargo stock was little changed.

The March turmoil, which so far has not been followed by new US bank failures, drove depositors to bigger financial institutions.

Total deposits fell 7 per cent on the year at JPMorgan Chase and 8 per cent for Wells Fargo, while Citigroup's deposits held steady. But JPMorgan deposits were up from the fourth quarter, according to Asia Nikkei.

"As you would expect, we saw significant new-account-opening activity and meaningful deposit and money market fund inflows, most significantly in the commercial bank, business banking and AWM [asset and wealth management]," JPMorgan Chief Financial Officer Jeremy Barnum said on an earnings call, soon adding that the bank estimates it had retained about $50 billion of these deposit inflows.

The bank's full-year outlook for net interest income -- the difference between revenue from interest-bearing assets and expenses from interest-bearing liabilities -- still assumes "modest deposit outflows," Barnum added.

Rising interest rates fuelled a massive spike in net interest income for JPMorgan Chase, which logged a 49 per cent year-on-year jump, Asia Nikkei said, adding net interest income for Wells Fargo was up 45 per cent.

But there were signs of unease for the months ahead, notably the potential for losses on lending for commercial real estate, which is under pressure from higher interest rates, Asia Nikkei said. JPMorgan increased its provision for credit losses by 55 per cent, and Wells Fargo put $643 million into its allowance for credit losses, heavily driven by commercial real estate loans for offices.

On the outlook for US interest rates, JPMorgan CEO Jamie Dimon said that "people need to be prepared." "They shouldn't pray that they don't go up," he said. "They should prepare for them going up. And if it doesn't happen, serendipity."

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