2023-04-18 18:01:06
Dhe stock markets are receiving a surprisingly strong tailwind from the quarterly figures from the major American banks. Contrary to the expectations of the analysts, who last week had predicted an average 10 percent drop in profits for the six largest US banks, Bank of America (Bofa) also increased its profits. As the second-largest listed bank in the United States announced on Tuesday at its headquarters in Charlotte (North Carolina), it earned $8.2 billion after taxes between the beginning of January and the end of March, 15 percent more than in the first quarter of 2022 Bofa follows the business figures of its competitors, of which the first reported on Friday about the first quarter: The largest private US bank JP Morgan increased its quarterly net profit by 52 percent to 12.6 billion euros, the third largest Citigroup by 7 percent to $4.6 billion.
The big exception in the reporting season that started on Friday is the investment bank Goldman Sachs: As the bank, which is heavily focused on capital market business, announced on Tuesday, its quarterly profit fell by 19 percent to $3.09 billion. Goldman cited data from Dealogic showing that the bank remained the market leader in M&A advisory over the past 12 months. But there are currently few transactions, in the first quarter of 2023 Goldman’s fee income in investment banking fell by 26 percent to $ 1.6 billion. In trading in bonds, currencies and commodities, which is of similar importance to Goldman as it is to Deutsche Bank, revenues fell 17 percent to $3.9 billion. A positive surprise was the increase in income in the funds and asset management business by 26 percent to at least 3.2 billion dollars.
Goldman’s total capital markets revenues of $8.4 billion still provide the lion’s share of total banking revenues of $12.2 billion in the first quarter of 2023. But it may grow with funds and asset management – similar to its rival, which is reporting later this week Morgan Stanley – for Goldman a second important business area after investment banking, after Goldman’s foray into private customer business under the name Marcus has so far not been very successful despite a cooperation with Apple. Here Apple is now catching deposits with a combat interest rate of 4.15 percent in the USA.
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The broader Bank of America also suffered from a 20 percent drop in investment banking fee income to $1.2 billion in the first quarter of 2023. However, like its competitors JP Morgan and Citigroup, Bofa benefited enormously elsewhere from the US Federal Reserve’s rate hikes. The Fed raised its target federal funds rate from 0 to 0.25 percent in March 2022 to 4.75 to 5.0 percent now. According to estimates by the analysts at JP Morgan, the US banks have only passed on 30 percent of this interest rate increase on their customers’ time deposits. According to data from the deposit insurance company FDIC, the average interest rate on savings accounts in the USA was only about 0.37 percent recently; for interest checking accounts comparable to current accounts in Germany, the interest rate was even lower at an average of 0.31 percent.
On the other hand, the banks extend loans for at least 3.5 percent, that’s how much a bond from the American government, which is considered almost risk-free, has a ten-year term. The sharp rise in the margin between interest on loans and deposits (“interest surplus”) is making the income of the major US banks bubble up.
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As Bank of America announced in detail on Tuesday, its net interest income jumped 25 percent to $14.4 billion. Competitor JP Morgan had even increased by 52 percent. Interest income is also the most important source of income for Bofa, accounting for 55 percent of all income. However, as with the other major banks, the balances on their accounts fell slightly by 20 billion to 1.9 trillion dollars.
The drop in deposits comes as a surprise at first sight, given that many customers withdrew their deposits from regional institutions following the collapse of Silicon Valley Bank and Signature Bank in March. Money market funds in particular benefited from this, the major US banks only to a small extent. A part of the savings of the Americans also flows into the cost of living, which has become more expensive. Overall, according to Fed data, the US banking system has lost more than $600 billion in deposits since December 2022, including around $249 billion from regional banks and $157 billion from the country’s 25 largest banks in March.
In addition to the dwindling deposits, possible loan defaults due to the US economy possibly shrinking slightly in the second half of 2023 and the increased interest rates, which are making real estate financing more at risk of default, are a future stress factor for banks. Bofa provided $901 million in loan loss provisions in the first quarter, down from the year-ago quarter. Goldman was even able to liquidate some of the reserves set aside for Marcus.
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