The decline in the three largest banks' primary revenue streams in the first three months of this year comes as even large financial institutions struggle with the same challenges faced by other industries as interest rates remain high. It shows that there is.
JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all announced Friday that their net interest income fell from the fourth quarter to the first. JPMorgan fell 4%, Wells Fargo fell 4% and Citigroup fell 2%.
Net interest income is an important measure for many banks because it measures the difference between the income the bank earns on its assets and the amount it pays out on deposits.
Smaller banks have struggled to enforce this measure over the past year as interest rates and deposit costs have soared. Now, in the first quarter, there are signs that high interest rates are starting to squeeze growth even at the country's largest financial institutions.
JPMorgan said in a press release that net interest income decreased due to “deposit margin compression and lower deposit balances.”
Depositors, like smaller banks, are looking for higher yields and are moving their money into products such as certificates of deposit, where JPMorgan has to pay higher interest rates.
“As customers move away from checking and savings accounts, they may choose to move to CDs,” Chief Financial Officer Jeremy Burnham told reporters Friday in response to questions from Yahoo Finance. That means banks are paying more for internal migration.”
“This is the type of deposit movement that we expect” for the remainder of 2024, he added.
To be sure, it remains true that large banks are better positioned than their competitors to withstand periods of rising interest rates and will continue to earn significant profits on loans.
For example, Citigroup's first-quarter net interest income was $1 billion higher than expected, and JPMorgan raised its full-year 2024 net interest income forecast, excluding trading, to $89 billion from its previous estimate of $88 billion. .
However, compared to 2023, it was flat. JPMorgan stock fell more than 5% on Friday as investors absorbed the news.
JPMorgan's overall profit still rose 6% from a year earlier to $13.4 billion, beating Wall Street expectations.
“We're a little wary.”
Wells Fargo and Citigroup both said they were also increasing deposit payments.
Wells' average deposit cost was 1.74%, higher than 1.58% in the fourth quarter and 0.83% in the year-ago period. Overall profit decreased 7% compared to the same period last year.
At Citigroup, the average interest rate paid on deposits was 3.70%, up from 3.61% in the previous quarter and 2.72% in the year-ago period. Overall profit decreased by 27% compared to the same period last year.
Citigroup also provided an update on the bank's ambitious restructuring, which has resulted in thousands of job losses. The company announced it has cut 7,000 positions as part of its goal to reduce its workforce by 20,000 by 2026.
Shares of Wells Fargo and Citigroup were both flat on Friday.
There was a lot of positive news in Friday's bank results. JPMorgan set aside less money to protect against future loan losses and investment banking fees rose 21% to $2 billion, a sign that Wall Street's revival may be beginning.
However, most of this was due to debt underwriting business, not advisory business.
“We're being a little cautious” about increased M&A activity, Burnham said.
JPMorgan boss Jamie Dimon echoed the themes he hammered home in his annual shareholder letter earlier in the week, issuing further warnings about the future of the U.S. economy.
“Many economic indicators remain strong,” Dimon said. “However, as we look to the future, we remain vigilant against a number of significant uncertain forces.”
He cited wars and geopolitical tensions, “sustained inflationary pressures” that “will likely continue,” and the Federal Reserve's quantitative tightening campaign.
Mr. Dimon said he was prepared for interest rates to rise to 8%. Asked by Yahoo Finance on Friday about the prospects for interest rates to remain high for an extended period of time, he said, “It's not that important that interest rates are going to be high. What's important is why.”
“If it's due to stagflation, that's obviously a negative. If it's due to healthy growth, that's actually pretty good.”
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