JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) all started the earnings season by announcing first-quarter results that beat quarterly estimates. All major banks' stock prices have fallen since Friday morning.
Saul Martinez, head of U.S. financial research at HSBC, discusses the most important numbers for these three big banks, including quarterly net interest income as the financial sector weathers inflation and interest rates rise over time. .
“If you look back at the first quarter, we had six rate cuts priced in. We've now had around two rate cuts. So, coupled with the fact that JPMorgan was quite conservative, the change in the rate outlook is I think there was some hope that the net interest income outlook is that that translates into an increase in the outlook,'' Martinez told Yahoo Finance's Morning Brief. “From my perspective, the tone has been somewhat cautious. They're still saying that they feel there's going to be pressure on deposit pricing, that they're probably making too much money on deposits.” .”
For expert insights and the latest market trends, click here to watch the full episode of Morning Brief.
This post was written by luke carberry morgan.
video transcript
Brad Smith: This morning, we're here to draw out the commonalities about banks and look at the differences in how each bank can withstand Fed rate increases. Net interest income for all three companies decreased in the first quarter from the fourth quarter. To learn more, we're joined by Saul Martinez, HSBC's U.S. Treasurer.
Saul, thank you so much for taking the time. I'm sure everyone has a busy morning. You can hop on the call here and hear what executives have to say. What is most striking to you right now about the tone of bank executives and what you are hearing?
Saul Martinez: Thank you for inviting me. So far, we only have JPMorgan's financial results announcement. So we're still waiting for Wells Fargo, we're still waiting for Citi. Naturally, all three have achieved results. I think the outlook for net interest income is important. I think there was probably some expectation that JPMorgan and Wells Fargo would raise their net interest income outlook.
And JPMorgan maintained its $90 billion net interest income outlook. Looking back at the first quarter, I think six interest rate cuts were factored in. There have now been about two rate cuts. So I think there was also an expectation that a change in the interest rate outlook would lead to an increase in the outlook, coupled with the fact that JPMorgan was quite conservative in its net interest income outlook.
From my perspective, the tone was a little more cautious. They still feel that there is pressure on the pricing of deposits, and that they are perhaps making too much money on deposits, meaning deposit spreads are unusually high and are likely to remain the norm. He says it will be fruity. Therefore, I think the tone on this point was a little cautious. And I think they were inclined to do that, coupled with the expectations going into this quarter and his views with JPMorgan. Achieve strong performance and continually improve prospects. And I think the fact that they didn't do that in that context surprised some people.
So I think that part was important. For Wells Fargo, net interest income was also slightly weaker. I think there was some expectation that the guidance for net interest income, which is down 7% to 9%, would be raised. They kept it. But some other parts of their quarter were strong, and this was true for all three of his men who reported. The investment banking sector performed well. I think we also did a pretty good job of managing expenses overall.
So I think it was a little bit more complicated for Wells Fargo, despite the fact that net interest income didn't increase.
Sheena Smith: Saul, I'm curious what you think about what you just mentioned about the improvements we've seen within investment banking. And that was uniformly true for all three banks. Do you think this shows some optimism about trading activity, what to expect in the IPO market going forward, or do you think this is just a departure from more subdued levels? ?
Saul Martinez: I think there is some optimism here. This quarter's numbers show that debt capital markets issuance is very strong and JPMorgan says activity may be brought forward and its sustainability may be in some doubt. I emphasized.
On the other hand, I think it would have been better to issue shares. Actually, it depends on the IPO activity and whether it continues or not. I think the pipeline is good. The M&A side has been sluggish even in this quarter, so it's an interesting move. And even though the announcement isn't over yet — you'll get your reward when it's over — the announcement has been brought forward.
But JPMorgan has poured a bit of cold water there, or at least expressed a slightly more cautious tone, saying the regulatory backdrop remains very difficult and there is uncertainty as to whether we will see a very strong backlash there. It shows that. I tend to be a little more optimistic. If you look at investment banking relative to historical normalized interest rate levels, I think we'll see more activity in investment banking given the rise in stock prices and the rise in asset prices and stock prices. This bodes well for other banks, including Goldman and Morgan. Stanley through time.
Question marks remain about the strength of that recovery and how long it will occur.
Brad Smith: Saul, in closing — we have about 20 seconds left here — people, should investors be confident in a year of transformation for Citi?
Saul Martinez: I think so. I'm positive about City. I think the cost performance will be even better next year. I think it was encouraging that they maintained their revenue target of $80 billion. I think the credit was good. Market conditions have been pretty good, so I'm positive and positive. Hopefully, we're on track for better results towards the end of the year.
Sheena Smith: Okay. Saul Martinez, HSBC's US Treasurer, said: Thank you very much for taking time out of your busy morning. Thank you so much, Saul.
Saul Martinez: you're welcome.
