US banks, the first cracks in performance appear in the first quarter accounts

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American banks are still making quarterly profits, but tensions over the economic climate and interest rate increases are starting to weigh on profitability and above all on prospects. The main US institution, JP Morgan, in the first three months of the year achieved new increases in profits of 6% to 13.42 billion dollars, equal to 4.44 dollars per share, beating forecasts held at 4.17 dollars . Revenue in turn increased by 9% to 41.93 billion, above expectations of 41.69 billion. However, a less brilliant margin of interest seemed to operators to be indicative of the questions that now loom on the horizon.

Wars, inflation and rates

The veteran chief executive and chairman of the institute Jamie Dimon, who has been at the top for twenty years now, painted the picture of a healthy economy, with “many indicators that remain favourable”. And yet he was keen to highlight the unknowns, from wars to the high cost of living. Dimon said he “remains alert to a number of uncertain forces,” citing “persistent inflationary pressures, which are likely to continue” as well as the “terrible wars and violence” that feed geopolitical crises. Also under observation is the impact of the Federal Reserve’s quantitative tightening, i.e. the reduction of the Central Bank’s portfolio today amounting to 7,500 billion, which the CEO defined as an unprecedented event in terms of size. The stock of JP Morgan, one of the best performing banks this year, opened on Wall Street down 4 percent in response to this diagnosis of the conditions for the sector.

Interest margin in the viewfinder

The challenges for JP Morgan have emerged in particular on the front of crucial credit-related activities: the interest margin, the difference between active and passive interest, essentially between what the bank obtains on loans or securities and how much it gives to customers for deposits, they grew by a significant 11% to 23.08 billion. This figure, however, represented a sequential decline compared to the fourth quarter of the year and below forecasts of 23.13 billion. The bank also slightly raised its annual estimates of the so-called Net interest income, excluding trading, to 89 billion from 88, effectively in line with 2023.

The high interest rates in the United States, which today appear destined to remain so for longer given the tenacity of inflation, represent a double-edged sword for the banks: they have so far supported performances, because the institutions increase the conditions for loans much faster than they raise payments to account holders. A reckoning now appears to be underway, with the proliferation of products that perform better for consumers and attract them while potentially eroding the sector’s profits.

Wells Fargo and Citi

JP Morgan, which effectively inaugurated the entire quarterly season of Corporate America, has just returned from record profits of almost 50 billion last year and the loss of luster that has occurred in recent months is not an isolated case for the banking sector. Wells Fargo also beat quarterly expectations, with earnings per share of 1.26 dollars versus 1.12 expected and revenue of 20.86 billion, but net profits fell by 7% to 4.62 billion and reported an 8% decline in net interest income. Citigroup, fresh from internal reorganizations and cuts, reported a decline in profits of 27% to 3.37 billion and revenue slipped by 2% to 21.10 billion due primarily to asset sales. This even though it beat forecasts, with earnings of $1.86 per share compared to $1.23 anticipated. Investment banking increased by 35 percent.