Even as lenders have had to set aside billions of dollars to replenish deposit insurance funds that were greatly reduced by the crisis among medium-sized banks last spring, the nation's biggest banks are profiting from higher interest rates.
Profits for the fourth quarter of 2023 reported by JPMorgan Chase, Bank of America and Wells Fargo on Friday beat analysts' expectations, and the banks that provide accounts to a third of all Americans each said their customers continued to spend.
Citigroup, which is in the midst of a global restructuring, reported a net loss of $1.8 billion for the quarter, compared with a profit of $2.5 billion a year ago. The bank has warned that the one-time costs of its efforts to pull back from countries such as Russia and Argentina could prove costly. On Friday, it revealed plans to cut about 10 percent of its workforce as part of a restructuring outlined in detail last fall by its chief executive, Jane Fraser.
In the last quarter of 2023, JPMorgan earned $9.3 billion, or $3.04 per share, compared with $11 billion a year earlier. Earnings per share fell 74 cents, according to the Federal Deposit Insurance Corp.'s special estimate, the bank said. Analysts had expected earnings per share of about $3.32, so investors considered the bank's performance a success once the FDIC's one-time bill of $2.9 billion was taken into account.
The bank's revenue for the quarter was $38.6 billion. Compared to the same period last year, revenue was up 12 percent.
Unlike his peers at Bank of America and Wells Fargo, who appeared optimistic about the U.S. economy, JPMorgan Chief Executive Jamie Dimon warned that political leaders and investors may be underestimating the economic pain ahead.
In a statement released with the bank's earnings report, Mr. Dimon listed the wars in Ukraine and the Middle East, the US infrastructure overhaul and rising health care costs as “significant and somewhat unprecedented forces” that could drive up inflation — and therefore interest rates. Investors should be more than ready at this point.
Asked on Friday why the bank is forecasting six rate cuts in 2024, Mr. Dimon's report seemed to suggest something different, with JP Morgan's chief financial officer, Jeremy Barnum, saying the bank used models to predict rate cuts. “Beyond that, everyone has different views on the rates, which they should do.”
Consumers and businesses faced more than 20 years of high interest rates as the Federal Reserve tried to control inflation. The rise in rates touched off a crisis among medium-sized banks last March, causing three lenders to fail and a fourth to liquidate. Federal officials tapped the government's deposit insurance fund, bailing out depositors at the two failed institutions, and now collecting about $16.3 billion, relying on big banks to replenish the funds.
Bank of America's profits shrank this quarter as it paid a $2.1 billion special assessment to government funds to absorb the cost of bank failures. It also registered $1.6 billion fee Associated with the discontinuation of the Bloomberg Short-Term Bank Yield Index, it was adopted to replace the discontinued London Interbank Offered Rate. That accounting adjustment will be reflected in subsequent quarters; The bank plans to recoup $1.6 billion in interest income over the next few years.
Including those costs and adjustments, the bank posted a profit of $3.1 billion in the quarter on revenue of $22 billion, compared with a profit of $7.1 billion on revenue of $24.6 billion a year ago.
Brian Moynihan, the bank's chief executive, described the quarter as a “solid” quarter and praised the bank's “good credit demand” and growth in customer deposits. They have moved steadily higher since last year's turmoil caused by regional bank failures and interest rates that sent investors searching for higher yields. Bank of America's average deposits in the quarter were $1.9 trillion, slightly below its average a year ago.
Wells Fargo earned $3.4 billion on revenue of $20.4 billion, both higher than a year earlier. The bank paid an estimated $1.9 billion to government funds, and recorded $969 million in severance costs it expects this year. It did not provide an estimate of how many jobs it expects to cut, and the bank's chief financial officer, Michael Santomassimo, said the cuts would be spread across the bank. He attributed the cuts to “efficiency work we're doing across the company.”
Higher interest rates have helped fuel banks' profits, and executives are bracing for the consequences if the Federal Reserve cuts rates, as expected. Wells Fargo said its net interest income will fall at least 7 percent this year. The bank's chief executive, Charlie Scharf, said the bank was “sensitive” to interest rates and the overall health of the US economy, but he took an upbeat tone, saying credit quality remained strong, a sign of consumer resilience.
Citigroup's net loss was a $1.7 billion FDIC bill and an addition to the bank's loss reserves to prepare for risks in Russia and Argentina, as well as damage from the sudden devaluation of the Argentine peso. Over the next two years, the bank plans to cut 20,000 jobs out of a total of 200,000.
