Profits at big US banks show few signs of industry distress
The nation's largest banks appear to be weathering the current turmoil in their industry, although they are still feeling the effects of the housing crisis.
NEW YORK, NY (AP) - The largest banks in the United States appear to be coping well with the current turmoil within their industry.
The nation's largest banks reported strong profits in the last quarter despite a pair historical failures that sent the banking industry into crisis last month. This was helped by the higher interest rates, and an economy that continues to grow and add jobs, even though the Federal Reserve is trying to curb inflation.
JPMorgan Chase & Co. reported a 52% increase in its first quarter profits. After the failures of Silicon Valley Bank and Signature Bank, the bank's deposits grew noticeably. Wells Fargo reported that it had earned $5 billion or $1.23 a share in the three-month period ended March 31. This was 10 cents more than analysts' expectations. The revenue also exceeded Wall Street's expectations.
Citigroup, meanwhile, also exceeded analysts' revenue estimates despite its bottom line being affected by one-off losses on certain investments.
The results were closely scrutinized by market participants looking for cracks in the US Banking Sector. Those analysts who were looking for signs of a banking crisis found none, said Octavio Märenzi, CEO at Opimas LLC in an email.
After JPMorgan Wells, and PNC Financial announced their results, analysts at UBS wrote a report entitled 'What Crisis?'
Investors are deeply concerned with the banks as they enter this earnings season following the collapse of Silicon Valley Bank. Banks have benefited from the ability to charge more for loans when rates are higher, but they have also accrued billions in losses in paper on bonds and securities purchased at lower interest rates.
Investors have had little concern about the biggest banks because of the size and diversity of the businesses they operate in -- trading, investment banking etc. They can hold a wide range of securities. Since the 2008 financial crash, the biggest banks have been backed by the government as 'too large to fail'.
Since the collapse of Silicon Valley Bank, this backstop has brought in billions to the biggest banks. JPMorgan increased its deposits to $2.4 trillion by an additional $37 billion in the third quarter. The deposits at the big banks have been declining for several quarters, as consumers used up their savings to pay their bills and businesses used their cash reserves to pay their bills. After the failure of Silicon Valley Bank and Signature Bank, in March, many businesses moved their money from smaller banks to larger banks.
The regulators turned again to the bigger institutions, especially JPMorgan, and its CEO Jamie Dimon. These two have been the go-to solution providers for the banking industry for many years.
JPMorgan helped form a consortium with other large banks after Silicon Valley Bank and Signature Bank collapsed. This prevented First Republic Bank from becoming the next bank to fail. The consortium of banks deposited $30 billion in First Republic as uninsured deposit, which appears to have bought the midsize Bank some time to fix its balance sheet and possibly find a buyer.
The U.S. Economy continues to be in good health. Consumers are still spending, businesses have healthy balance sheets and consumers are doing well. The storm clouds we've been watching for the last year are still on the horizon. And the turmoil in the banking sector adds to the risks.
JPMorgan executives told reporters that they had seen around $50 billion enter the bank following SVB's failure. JPMorgan executives said that they saw around $50 billion come into the bank after SVB failed.
The midsize banks, which report next week, will get more attention than usual. Banks like KeyCorp and Zions Bank as well as Comerica and other banks saw their stock prices plummet due to the fact that they are similar in size and business to Silicon Valley Bank.
Even though the largest banks have reported good results, the majority of banks in their investor calls still expect a slowdown to the U.S. economic later this year. Citigroup CEO Jane Fraser said that she expects the bank to experience a "mild" recession by the end of this year. Fraser noted that there are signs the consumer spending has slowed down. This was confirmed by a report released on Friday, which showed that shoppers were cutting back their spending in retail stores.
Despite the failure of two banks, big banks have not tightened lending. This has been a concern for investors and economists alike as banks tend to try to protect their financial stability during turbulent times.