JPMorgan Chase, Bank of America, Citigroup, and asset management giant BlackRock reported positive forecasts on Jan. 13, but many investors were still left disappointed.
The banks managed to beat Wall Street’s reduced expectations for their fourth-quarter results, as higher interest rates boosted income from loans.
Performance was topsy-turvy in the morning, as bank shares went up and down, as investors absorbed the latest bank earnings, with many remaining concerned by the lenders’ downbeat tone in their earnings reports.
The benchmark S&P 500 Index was on its way toward its best week since November, with two weeks of positive results, while traders are still expecting a decline in inflation this year.
Financial lenders’ outlook on net interest income from loans have been taking a hit, due to their cautious approach amid concern over future market volatility and the next moves by the central bank on interest rates.
Many bank executives are also still worried about inflation and the threat of a recession in 2023, after the Federal Reserve massively raised interest rates last year.
JPMorgan Rakes in Earnings, but Warns of Recession by the End of 2023
JPMorgan CEO Jamie Dimon again warned of economic uncertainty due to higher interest rates this coming year, even as American consumer and business spending remained positive.
“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,” said Dimon in the bank’s earnings statement.
“We don’t know the future,” said Dimon, given the geopolitical environment that “these uncertainties are real.”
“We hope they go away, but they may not,” Dimon added.
Dimon shook the markets last June when he said that an economic “hurricane” caused by the Federal Reserve was headed for the U.S. economy.
“I shouldn’t have ever used the word ‘hurricane,’” Dimon told Maria Bartiromo on Fox Business on Jan. 10.
“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.”
The U.S. banking giant said it will set aside funds as it is expects a “mild recession” this year, posting a $2.3 billion provision for credit losses in the last quarter, which is a 49 percent increase from the third quarter, reported CNBC.
CFO Jeremy Barnum said JP analysts expect that a recession will likely hit the United States in the fourth quarter of this year, which would cause unemployment to reach 4.9 percent.
JPMorgan’s home lending unit saw a major slowdown, but there were some “headwinds” in its auto lending division, Barnum told reporters at a press conference.
The New York-based bank reported a 6 percent jump in profit from the year earlier, to $11.01 billion, or $3.57 per share,
Revenues rose 17 percent, to $35.57 billion, led by the rise in net interest income to $20.3 billion, as the bank saw average loans rise by 6 percent.
Wells Fargo Takes a Loss in the Fourth Quarter Due to Failing Home Loan Market
Meanwhile, Wells Fargo shares were down 1.5 percent in the morning after news broke that its earnings report missed its projected targets for the fourth quarter, despite making some gains.
The bank said its fourth-quarter profit fell by about 50 percent, to $2.59 billion, or $0.67 a share, from $5.47 billion, or $1.38 a share in the same quarter in 2021.
The rise in interest rates had caused mortgage rates to double in 2022, causing the housing market to crash.
As Wells Fargo is the most mortgage-dependent of the six largest U.S. banks, news last week that it would reduce the size of its mortgage operations may have led to the disappointing earnings report, according to CNBC.
“Though the quarter was significantly impacted by previously disclosed operating losses, our underlying performance reflected the progress we are making to improve returns,” said CEO Charlie Scharf in a statement.
“Rising interest rates drove strong net interest income growth, credit losses have continued to increase slowly, but credit quality remained strong, and we continue to make progress on our efficiency initiatives.”
Scharf said, “We are carefully watching the impact of higher rates on our customers.”
The bank also experienced a setback in December when the Consumer Financial Protection Bureau fined Wells Fargo $3.7 billion for engaging in numerous banking violations that harmed customers dating back to 2011.
It was accused by federal officials of improperly recording customer home and auto loan payments, wrongfully repossessing borrowers’ cars and homes, and wrongfully charging overdraft fees.
However, Wells Fargo’s net interest income rose over the past seven quarters, caused by rising interest rates.
The bank’s fourth-quarter interest income skyrocketed by 45 percent, to $13.43 billion, beating expectations of $12.97 billion, reported Investors Business Daily.
Banks Post Lower Profit, but See Income From Interest on Loans Rise
Citigroup’s stock rose 1.8 percent after it posted a lower profit, while the bank’s fourth-quarter net income fell to $2.5 billion, or $1.16, from $3.2 billion, or $1.46 a share, from the same quarter in 2021.
Bank of America reported earning of $7.1 billion, or $0.85 a share in the fourth quarter, compared to $7 billion, or $0.82 a share, in the year-ago quarter.
Net interest income revenue increased by 11 percent, to $24.5 billion.
Bank of America CEO Brian Moynihan said that the bank was currently operating in “an increasingly slowing economic environment,” reported CNN.
Investment Banking Witnesses Slow Down Due to Slump
Economic pessimism appears to be a major factor behind the stock plunge in 2022, when it suffered the worst losses since the financial crisis of 2008–09.
As a result of the Wall Street slump, there was a major slowdown at the end of last year in home mortgage loans, merger activity, and initial public offerings.
That led to a blow to to the investment banking side for banks like JPMorgan Chase and Citigroup, which reported that advisory fees had plummeted nearly 60 percent in the fourth quarter.
Goldman Sachs, which has been struggling to build up its consumer banking unit over the past few years, saw massive losses in that division.
It disclosed in a regulatory filing with the Securities and Exchange Commission on Jan. 6 that it had lost more than $3 billion in its consumer business since 2020.
However, BlackRock, which owns the iShares family of exchange-traded funds, saw a rebound in assets under management over the last two quarters, as its stocks soared in October and November.
“The current environment offers incredible opportunities for long-term investors,” said BlackRock CEO Larry Fink in the latest earnings release.