The country's largest banks are turning a profit as interest rates remain high, even though lenders have had to set aside billions of dollars to replenish a deposit protection fund that was severely depleted by a crisis at midsize 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 about a third of all Americans, each reported that their customers continued to spend money would have.
Citigroup, which is in the midst of a global restructuring, reported a net loss of $1.8 billion for the quarter, compared with a profit of $2.5 billion a year earlier. The bank had warned that one-off costs from its efforts to withdraw from countries such as Russia and Argentina would prove costly. On Friday, the company announced plans to cut about 10 percent of its workforce as part of a restructuring that its chief executive, Jane Fraser, outlined last fall.
In the final quarter of 2023, JPMorgan earned $9.3 billion, or $3.04 per share, compared to $11 billion a year earlier. A special assessment by the Federal Deposit Insurance Corporation reduced earnings per share by 74 cents, the bank said. Analysts had expected earnings per share of about $3.32, so investors viewed the bank's performance as a win when taking into account the FDIC's one-time bill of $2.9 billion.
The bank's revenue was $38.6 billion in the quarter. Compared to the same period last year, sales increased by 12 percent.
Unlike his counterparts at Bank of America and Wells Fargo, who expressed optimism about the U.S. economy, JPMorgan Chief Executive Jamie Dimon warned that political leaders and investors may be underestimating the economic problems ahead.
In a statement released alongside the bank's earnings report, Mr. Dimon cited the wars in Ukraine and the Middle East, the modernization of U.S. infrastructure and rising health care costs as “significant and somewhat unprecedented forces” leading to inflation – and thus to interest rates. remain higher than investors currently expect.
Asked on Friday why the bank was forecasting six rate cuts in 2024 when Mr. Dimon's statement seemed to suggest otherwise, JPMorgan Chief Financial Officer Jeremy Barnum said the bank used models to predict the rate cuts. “Furthermore, everyone has different views on tariffs, and they should.”
Consumers and businesses faced the highest interest rates in more than 20 years as the Federal Reserve works to curb inflation. The rise in interest rates triggered a crisis at mid-market banks last March, leading to the bankruptcy of three lenders and the liquidation of a fourth lender. Federal officials tapped the government's deposit insurance fund to bail out depositors at two of the failed institutions and are now raising about $16.3 billion to replenish the fund, relying on the largest banks pay most of it.
Bank of America's profit shrank this quarter as it paid a $2.1 billion special assessment to the government fund that absorbs the costs of bank failures. The company also recorded a $1.6 billion charge related to the discontinuation of the Bloomberg Short-Term Bank Yield Index, a benchmark interest rate it introduced to replace the also discontinued London Interbank Offered Rate. This accounting adjustment will be reflected in later quarters; The bank plans to include $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 on revenue of $22 billion for the quarter, compared to a profit of $7.1 billion on revenue of $24 a year earlier .6 billion US dollars.
Brian Moynihan, the bank's chief executive, called the quarter “solid” and praised the bank's “good loan demand” and customer deposit growth. These have risen steadily after the turmoil caused last year by regional bank failures and rising interest rates, which sent investors seeking higher returns. Bank of America's average deposits were $1.9 trillion in the quarter, only slightly below the average for the previous year.
Wells Fargo generated $3.4 billion on sales of $20.4 billion, both more than the previous year. The bank paid $1.9 billion to the government fund and recorded $969 million in severance costs it expects to incur this year. It has not provided an estimate of how many jobs it expects to cut, and Michael Santomassimo, the bank's chief financial officer, said the cuts would be broad across the bank. He attributed the cuts to “the efficiency work we are doing across the company.”
High interest rates have helped boost banks' profits, and executives are bracing for the impact if the Federal Reserve cuts rates as expected. Wells Fargo said its net interest income could fall at least 7 percent this year. Charlie Scharf, the bank's chief executive, said the bank was “sensitive” to interest rates and the overall health of the American economy, but struck an optimistic tone, saying credit quality remained strong, a sign of consumer resilience .
Citigroup's net loss included a $1.7 billion FDIC bill and an increase in the bank's loss reserves to prepare for risks in Russia and Argentina, as well as the impact of the sudden devaluation of the Argentine peso. In the next two years, the bank plans to cut around 20,000 of a total of 200,000 jobs.