The country’s largest banks are making profits as interest rates remain high, even though lenders have had to set aside billions of dollars to replenish a deposit insurance fund severely depleted by a crisis among mid-sized banks last spring.
Fourth-quarter 2023 earnings reported Friday by JPMorgan Chase, Bank of America and Wells Fargo beat analysts’ expectations, and the banks, which together provide accounts for nearly a third of all Americans, reported that their customers continued to spend .
Citigroup, which is in the midst of a global restructuring, announced a net loss of $1.8 billion during the quarter, compared to a profit of $2.5 billion a year earlier. The bank has warned that one-time expenses incurred from its efforts to withdraw from countries such as Russia and Argentina are proving costly. On Friday, it revealed plans to cut nearly 10% of its workforce – or about 20,000 people – as part of a restructuring that its chief executive, Jane Fraser, explained extensively last fall.
In the fourth quarter of 2023, JPMorgan earned a profit of $9.3 billion, or $3.04 per share, compared to $11 billion a year earlier. The bank said a special assessment by the Federal Deposit Insurance Corporation reduced earnings per share by 74 cents. Analysts had expected earnings per share to be around $3.32, so investors viewed the bank’s performance as a win once the one-time FDIC bill of $2.9 billion was taken into account.
The bank’s revenues for the quarter amounted to $38.6 billion. Compared to the same period of the previous year, revenues increased by 12%.
Unlike his counterparts at Bank of America and Wells Fargo, who appeared optimistic about the US economy, JP Morgan CEO Jamie Dimon warned that political leaders and investors may be underestimating the economic pain that awaits them.
In a statement issued with the bank’s earnings report, Dimon listed wars in Ukraine and the Middle East, infrastructure reform in the United States and rising health care costs as “large and somewhat unprecedented forces” that could cause inflation – and therefore interest rates – to remain unchanged. Higher than investors are currently preparing for.
When asked on Friday why the bank expected six rate cuts in 2024 when Dimon’s statement seemed to indicate something different, Jeremy Barnum, chief financial officer at JP Morgan, said the bank used models to forecast the rate cuts. “Beyond that, everyone has different views on interest rates, which is what they should do,” he said.
Consumers and businesses faced the highest interest rates in more than 20 years as the Federal Reserve worked to tame inflation. The rise in interest rates sparked a crisis last March among medium-sized banks, causing the bankruptcy of three banks and the dissolution of a fourth. Federal officials tapped the government’s deposit insurance fund to insure depositors at two failed institutions, and are now raising nearly $16.3 billion to replenish the fund, counting on the largest banks to pay the bulk.
Bank of America’s profits shrank this quarter as it paid a $2.1 billion special assessment for the government fund that absorbs the cost of bank failures. It also recorded a $1.6 billion charge related to the discontinuation of the Bloomberg Short-Term Bank Yield Index, a benchmark it adopted to replace the London interbank offered rate that was also discontinued. This accounting adjustment will be reflected in subsequent chapters; The bank plans to write off $1.6 billion in interest income over the next few years.
Including these costs and adjustments, the bank reported a profit of $3.1 billion for the quarter on revenue of $22 billion, down from a profit of $7.1 billion a year earlier on revenue of $24.6 billion.
Brian Moynihan, the bank’s chief executive, described the quarter as “strong” and praised the bank’s “good loan demand” and growth in customer deposits. Those yields have risen steadily after the turmoil caused last year by regional bank bankruptcies and rising interest rates sent investors searching for higher yields. Bank of America’s deposits in the quarter averaged $1.9 trillion, slightly below its average a year ago.
Wells Fargo had $3.4 billion on revenue of $20.4 billion, an increase from the previous year. The bank paid a $1.9 billion assessment to the government fund and booked $969 million in severance costs it expects to incur this year. He did not estimate how many jobs were expected to be cut, and Michael Santomassimo, the bank’s chief financial officer, said the cuts would be widespread throughout the bank. He attributed the reductions to “the efficiency of the work we do throughout the company.”
Higher interest rates have helped boost bank profits, and executives are bracing for the effects if, as expected, the Fed cuts interest rates. Wells Fargo said net interest income could fall at least 7% this year. Charlie Scharf, the bank’s chief executive, said the bank was “sensitive” to interest rates and the overall health of the US economy, but struck an upbeat tone, saying credit quality remained strong, a sign of consumer resilience.
Citigroup’s net loss included a $1.7 billion bill from the Federal Deposit Insurance Corporation (FDIC) as well as the bank’s loss reserves to prepare for risks in Russia and Argentina, as well as the hit from the sudden decline in the value of the Argentine peso.