By Chris Dorrell
The largest US banks appear in rude health despite concerns about the wider financial sector as higher interest rates continue to boost lenders.
JP Morgan, Citi and Wells Fargo all beat expectations when they released results for the first quarter on Friday. In response, analysts at UBS wrote “crisis, what crisis? The banking industry flexes back.”
Bloomberg Intelligence’s Alison Williams said the three banks “showed better than expected net interest income, fuelling a more positive outlook – especially for JPMorgan.”
JP Morgan’s results were the best of the lot, helping its share price rise more than seven per cent on the day.
“JPMorgan’s net interest income (NII) has momentum into the rest of the year,” Williams said, thanks to an expanding net interest margin. The bank forecast $81bn in net interest income for 2023, up from its previous guidance of $74bn.
Wells Fargo also looks in a strong position for the remainder of 2023. The bank exceeded expectations on interest income and analysts at UBS pointed out that Wells’ net interest margin of 3.20 per cent should act as a “strong base” for results throughout the year too.
While Citi too outperformed expectations, analysts at UBS argued there was still more work to do at the bank as it continues its efforts to simplify its business model.
“Despite strong 1Q23 results and better than feared outlook, we don’t think Citi is out of the woods just yet, as management needs to work through a number of issues for the stock to work longer term,” the analysts said.
“While it closed the sale of its India franchise this quarter, the disposition of a much larger Banamex remains in the works, with a number of uncertainties surrounding it,” they added.
There was also not much evidence of deposit flight at the Wall Street giants. JP Morgan saw an influx of cash as investors sought its “fortress balance sheet”.
UBS noted that “JPM was a clear beneficiary of deposit reallocation.”
The results bode well for Bank of America and Goldman Sachs, who report first quarter figures on Tuesday.
While investment banking revenue is expected to remain subdued – affecting Goldman and Morgan Stanley in particular – the banks might still see some gains from fixed-income trading.
Bank of America, which has a large retail deposit base, will hope its net interest income matches its rivals.
The results come just weeks after the collapse of Silicon Valley Bank sent shock waves through the global financial system.
Although Jamie Dimon has warned that the crisis is “not yet over”, the results suggest America’s largest banks are in a strong position to weather the storm.
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