JPMorgan, Wells Fargo, Bank of America and Citi beat earnings expectations, but ‘headwinds’ concerns remain

JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. beat Wall Street’s lowered expectations for fourth-quarter earnings as higher interest rates boosted lending income.

Despite a slowdown in overall deal activity such as home mortgages and initial public offerings, banks posted stronger-than-expected results.

But JP Morgan shares fell after CEO Jamie Dimon warned of economic uncertainty as central banks go ahead with plans to raise interest rates while consumers continue to spend and businesses remain healthy.

“We still don’t know the final impact of the headwinds from geopolitical tensions, including the war in Ukraine, the fragile state of energy and food supplies, persistent inflation that is reducing purchasing power and raising interest rates, and unprecedented quantitative tightening. Dimon said.

The bank also released its first forecast for net interest income for 2023 of $74 billion excluding the market unit, below Wall Street’s last estimate of $75.2 billion.

In a meeting with journalists, Jeremy Barnum, JPMorgan’s financial director, said that the bank’s net interest income forecast is “conservative” given the macroeconomic uncertainties.

“We don’t know the future,” CEO Dimon said, considering the global geopolitical environment.

“These uncertainties are real,” Dimon said. “We hope they’ll go away, but they won’t.”

JPMorgan Chase JPM,
said fourth-quarter profit rose to $11.01 billion, or $3.57 per share, from $10.4 billion, or $3.33 per share, in the prior quarter. Net income rose to $35.57 billion from $30.35 billion in the previous quarter.

JPMorgan Chase beat Wall Street estimates of $3.08 a share in earnings and $34.35 billion in revenue, according to data compiled by FactSet.

Analysts are cutting earnings forecasts for JP Morgan in the days leading up to fourth-quarter results, according to FactSet data. But the bank still beat its $3.15 upside forecast.

JPMorgan Chase shares fell 2.4% in premarket trading.

Peter Torrente, KPMG’s US national sector leader for banking and capital markets, said earnings at JPMorgan and other big bankers were solid and the result was the profit from loans that banks reported as net interest income.

Loan reserves have increased significantly over the past year and investment banking fees have been impacted by a weak deal environment.

“As in the last quarter, the magnifying glass for the industry continues to move over the macroeconomic outlook for 2023, with loan losses, loan demand and deposits in focus as trailing indicators of turbulence,” Torrente said.

Bank of America BAC,
Shares fell 1.4% after the financial firm beat profit and revenue targets as it benefited from higher interest rates on its loans.

Bank of America said it earned $7.1 billion, or 85 cents a share, in the fourth quarter, compared with $7 billion, or 82 cents a share, in the year-ago quarter. Net interest income rose 11% to $24.5 billion.

Wall Street analysts had expected earnings of 77 cents a share on revenue of $24.17 billion, according to data compiled by FactSet.

The bank said net interest income rose 29%, or $3.3 billion, to $14.7 billion, driven by “higher interest rates, including lower premium amortization costs, and solid loan growth.”

Wells Fargo & Co. WFC,
The stock fell 3.7% after fourth-quarter revenue missed expectations.

The bank said fourth-quarter profit fell to about $2.59 billion, or 67 cents, from $5.47 billion, or $1.38 a share, in the year-ago quarter. That beats analysts’ estimate of 60 cents a share.

Revenue fell 5.7% to $19.66 billion, versus analysts’ consensus of $19.99 billion.

Net interest income rose 45% to $13.43 billion.

The bank said earlier this week that it was reducing the volume of its home mortgage business. He also said that consumer banking and lending loans increased by 4%, while commercial bank loans increased by 18%.

Wells Fargo has previously disclosed the impact of 70 cents a share on litigation and regulatory issues, including the recent settlement with the Consumer Financial Protection Bureau.

Citigroup C,
shares fell 2.4% after the bank posted lower profits. Fourth-quarter net income fell to $2.5 billion, or $1.16 a share, from $3.2 billion, or $1.46 a share, in the prior quarter. Analysts were looking for earnings of $1.14 per share, according to a survey by FactSet.

Revenue rose 6% to $18.0 billion, slightly above analysts’ estimates of $17.96 billion.

Excluding investments, revenue rose 5% as the impact of higher interest rates across businesses and strong loan growth in US retail banking were partially offset by declines in investment banking and lower investment product revenues in global wealth management. left the markets.

Ahead of bank earnings, analysts at Keefe, Bruyette & Woods said they expect strong net interest income growth from big banks as higher interest rates allow them to charge more to lend. At the same time, activity in investment banking and mortgage lending has been weak.

However, overall, US consumers have relatively low unemployment numbers, despite the recent increase in layoffs.

With earnings from major banks, Wall Street is looking for clues about the health of the economy and the impact of higher interest rates and inflation.

Big bank stocks are rising in 2023, but still well below year-ago levels.

As of Thursday’s close, JPMorgan shares are up 4% in 2023, but down 16.7% over the past 12 months. Dow Jones Industrial Average DJIA,
now up 3.2% for the year and down 5.7% over the past 12 months, the S&P 500 SPX,
It increased by 3.7% in 2023 and decreased by 15.5% in the last 12 months.

Bank of America shares are up 4.1% for 2023, but down 30% over the past year. Wells Fargo shares are up 3.7% in 2023 and have lost 23.6% over the past year. Citigroup is up 8.5% so far in 2023 and down 26.9% over the past year.

In the face of potential competition for deposits from consumers, banks may have to pay higher interest rates for account holder products such as CDs.

Another key indicator is asset quality, which is influenced by the quality of the loan portfolio and the loan management program. If these numbers begin to weaken, they could provide more clues about a potential recession.

In an interview at the JPMorgan Healthcare Conference this week, JPMorgan CEO Dimon also opened some fresh barbs against cryptocurrencies and criticized crypto-trading platform FTX, which filed for bankruptcy late last year.

The outspoken Dimon warned against what he called an economic hurricane in a widely quoted interview in June.

Dimon echoed those words in an interview with Fox Business on Tuesday.

“I should never have used the word ‘hurricane,'” Dimon said in the interview. “What I was saying was that there were storm clouds to moderate. People said they thought it was no big deal and I said no, those storm clouds could be hurricanes. And I say these things, I speak … nothing can happen [or] it could be bad and I think we have to understand, I’m not predicting one or the other.”

Also this week, BlackRock Inc. BLK,
added its name to a growing list of financial and other companies cutting jobs for the first time since 2019 with plans to reduce their workforce.

Also read: BlackRock is cutting 500 jobs, or less than 3% of its workforce

On Tuesday, Goldman Sachs is forecast to report earnings of $5.56 per share on $10.76 billion, while Morgan Stanley is forecast to report earnings of $1.29 on revenue of $12.54 billion.

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