JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. managed to beat Wall Street’s reduced expectations for their fourth-quarter profits as higher interest rates boosted income from loans.
The banks turned in stronger-than-expected results despite a slowdown in overall deal activity such as home-mortgage loans and initial public offerings.
Bank stocks moved into positive territory in midday trades after shaking off losses earlier in the session.
Kicking off the busy earnings day, JPMorgan Chase CEO Jamie Dimon warned of economic uncertainty amid higher interest rates, even as consumers continue to spend and businesses remain healthy.
“We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening,” Dimon said in a prepared statement.
JPMorgan Chase disclosed its first forecast for 2023 net interest income of $74 billion excluding its markets unit, which is below the latest Wall Street estimate of $75.2 billion.
On a call with reporters, JPMorgan CFO Jeremy Barnum said the bank’s net interest income projection is “conservative” given the macroeconomic uncertainties. The bank is planning for a mild recession in late 2023 and early 2024, as its economists projected on Dec. 8.
Given the global geopolitical environment, “we don’t know the future,” Dimon said.
“These uncertainties are real,” he said. “We hope they go away, but they may not.”
Brian Shepardson, a portfolio manager at James Balanced Golden Rainbow Fund
GLRBX,
which owns shares of JPMorgan Chase, said the bank’s results were “pretty decent” when considering the challenging economic environment in 2022.
Shepardson praised the bank’s efforts to beef up its fourth-quarter provision for credit losses to $2.3 billion from $1.54 billion in the previous quarter to protect its balance sheet against potential higher loan defaults.
“If there are any more hiccups with inflation or fears around moves by the Fed, they have the flexibility to come out of [it] really well,” Shepardson said.
JPMorgan Chase
JPM,
said its fourth-quarter profit rose to $11.01 billion, or $3.57 a share, from $10.4 billion, or $3.33 a share, in the year-ago quarter. Net revenue increased to $35.57 billion from $30.35 billion in the year-ago quarter.
JPMorgan Chase beat the Wall Street earnings estimates of $3.08 a share and revenue of $34.35 billion, according to data compiled by FactSet.
Analysts have been reducing their profit forecasts for JPMorgan in the days leading up to its fourth-quarter results, with the latest estimate of $3.08 a share, down from $3.15 a share on Dec. 30, according to FactSet data. But the bank still topped the more bullish forecast of $3.15.
Shares of JPMorgan Chase rose 2.5{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} in afternoon trades.
Peter Torrente, KPMG U.S. national sector leader for banking and capital markets, said the earnings from JPMorgan and other big banks were solid, with results driven by profit from loans, which the banks report as net interest income.
Credit reserves increased significantly over the past year and investment-banking fees remained affected by the lackluster deal-making environment.
“Much like the last quarter, the magnifying glass for the industry continues to hover on the macroeconomic outlook for 2023, focusing on credit losses, loan demand and deposits as trailing indicators of turbulence,” Torrente said.
Bank of America’s
BAC,
stock rose 1.8{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} after the financial firm beat its earnings 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. Revenue, net of interest expense, increased by 11{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} to $24.5 billion.
Wall Street analysts expected earnings of 77 cents a share on revenue of $24.17 billion, according to data compiled by FactSet.
Net interest income rose 29{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, or $3.3 billion, to $14.7 billion, “driven by benefits from higher interest rates, including lower premium amortization expense and solid loan growth,” the bank said.
Bank of America CEO Brian Moynihan said the company faced “an increasingly slowing economic environment” but managed to end the year by growing profits from the year-ago quarter.
“The themes in the quarter have been consistent all year, as organic growth and rates helped deliver the value of our deposit franchise,” Moynihan said. “That coupled with expense management helped drive operating leverage.”
Wells Fargo & Co.’s
WFC,
stock moved up by 2.3{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} after its fourth-quarter revenue missed expectations.
The bank said its fourth-quarter profit fell by about half to $2.59 billion, or 67 cents a share, from $5.47 billion, or $1.38 a share, in the year-ago quarter. That’s ahead of the analyst estimate of 60 cents a share.
Revenue declined 5.7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} to $19.66 billion, against an analyst consensus of $19.99 billion.
Net interest income increased by 45{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} to $13.43 billion.
Wells Fargo also projected 10{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} growth in 2023 net interest income, to about $49.5 billion, which is below the latest analyst estimate of $51.69 billion.
The bank said earlier this week that it was reducing the size of its home-mortgage business. It also said that consumer banking and lending increased 4{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} and commercial banking loans climbed 18{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}.
Wells Fargo also previously disclosed an impact of 70 cents a share from litigation and regulatory matters, including a recent settlement with the Consumer Financial Protection Bureau.
Citigroup’s
C,
stock rose 1.8{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} after the bank posted a lower profit. Fourth-quarter net income fell to $2.5 billion, or $1.16, from $3.2 billion, or $1.46 a share, in the year-ago quarter. Analysts were looking for earnings of $1.14 a share, according to a survey by FactSet.
Revenue increased 6{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} to $18.0 billion, slightly above the analyst estimate of $17.96 billion.
Excluding divestments, revenue rose 5{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, as the impacts of higher interest rates across businesses and the strong loan growth in U.S. personal banking were partially offset by a decline in investment banking and lower investment-product revenue in global wealth management as well as impacts from the exited markets.
Ahead of bank earnings, analysts at Keefe, Bruyette & Woods said they expect strong net interest income growth from the big banks as higher interest rates allow them to charge more to lend money. At the same time, activity has been weak in investment banking and mortgage lending.
Overall, however, U.S. unemployment numbers remain relatively low, despite an increase in layoffs of late.
With the earnings from the big banks, Wall Street is looking for clues on the health of the economy and the effect of higher interest rates and inflation.
Shares of the big banks have been moving up in 2023 but are still well below year-ago levels.
As of Thursday’s close, JPMorgan’s stock has risen 4{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} in 2023 but is down 16.7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} over the past 12 months. The Dow Jones Industrial Average
DJIA,
is now up 3.2{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} for the year and down by 5.7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} over the past 12 months, while the S&P 500
SPX,
rose 3.7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} in 2023 while falling 15.5{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} over the past 12 months.
Bank of America’s stock is up 4.1{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} for 2023 and down by 30{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} over the past year. Wells Fargo’s stock has risen 3.7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} in 2023 and lost 23.6{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} over the past year. Citigroup is up 8.5{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} so far in 2023 and is lower by 26.9{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} over the past year.
With potential competition for deposits from consumers, banks may have to pay out higher interest rates for account-holder products such as CDs, which could eat into margins.
Another key metric is asset quality, which is affected by the quality of the loan portfolio and the credit-administration program. If these numbers start to weaken, that could offer more clues about a potential recession.
In an interview this week at the JPMorgan Healthcare Conference, Dimon also unleashed some fresh barbs against cryptocurrencies and criticized the crypto-trading platform FTX, which filed for bankruptcy late last year.
The outspoken Dimon had warned against what he termed an economic hurricane in a widely quoted interview in June.
Dimon revisited the remarks on Tuesday on the Fox Business show “Mornings with Maria.”
“I shouldn’t have ever used the word ‘hurricane,’” Dimon said in the interview. “What I said was there were storm clouds which may mitigate. People said they didn’t think it was a big deal, and I said no, those storm clouds could be a hurricane. And so I’m saying this stuff, I’m talking about … it could be nothing [or] it could be bad, and I think we should understand, I’m not predicting one or the other.”
Also this week, BlackRock Inc.
BLK,
added its name to the growing list of financial and other companies that are cutting jobs, saying it plans to reduce its workforce for the first time since 2019.
Also read: BlackRock cutting 500 jobs or less than 3{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} of workforce
On Tuesday, Goldman Sachs is forecast to report earnings of $5.56 a share on revenue of $10.76 billion, and Morgan Stanley is expected to report adjusted profit of $1.29 a share on revenue of $12.54 billion, according to the latest analyst estimates.
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