In the quarter in which a regional banking crisis broke out in the USA, analysts had expected the major bank JP Morgan Chase to grow profits by 30 percent. However, the largest listed American bank in terms of total assets beat this expectation by far on Friday, thus ensuring a promising start to the corporate reporting season for the first quarter of 2023. The quarterly balance sheets published by Wells Fargo and Citigroup also show that major US banks are benefiting greatly from the Fed’s sharp rise in interest rates year-on-year.
According to rough calculations, American banks only pay their savings customers 30 percent of the higher interest rates on their deposits, while they fully benefit from this in new lending business. The higher interest margin between deposits and loans led to interest income (“net interest income”) at JP Morgan and Wells Fargo in the first quarter of 2023, which exceeded the prior-year quarter by almost 50 percent. The investment banking business, especially advice on company acquisitions and IPOs, is sluggish across the industry.
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In January, JP Morgan still dampened analysts’ expectations for net interest income in 2023. As the bank has now announced in detail, between the beginning of January and the end of March it took in $38.3 billion (previous year: $30.7 billion) more than ever before in a quarter. At EUR 20.8 billion, net interest income was the most important source of income. Expenses rose a modest 5 percent to $20.1 billion, and provisions for bad loans nearly doubled to $2.3 billion. Nearly $700 million was lost on bonds that have lost value due to higher interest rates.
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Nevertheless, JP Morgan’s net profit rose by a whopping 52 percent to $ 12.6 billion in the first quarter of 2023 compared to the same quarter last year. That’s about twice as much as Deutsche Bank earned in its good 2022 financial year. JP Morgan is also top compared to its American competitors: Wells Fargo, the fourth-largest US bank based in San Francisco in terms of total assets, reported on Friday quarterly profit growth of 32 percent to $5 billion. More dependent on investment banking, Citigroup, number three in the industry, increased quarterly profit by 7 percent to $4.6 billion. Citi also exceeded expectations. Bank stock prices rose unanimously on Wall Street on Friday.
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After the collapse of the smaller institutions Silicon Valley Bank, First Republic and Signature Bank in March, the deposits of US savers have seen more movement than usual. Above all, those bank customers with a large balance on the account have transferred money to large banks, because in the event of bank insolvency, the statutory deposit insurance FDIC only compensates up to 250,000 dollars. Savers feel safer with large banks than with small ones because bank supervisors, as was the case recently in Switzerland with the failed Credit Suisse, almost never dare to let a large bank go bankrupt because of the dangers to financial market stability. But the big banks also suffered from the fact that many Americans need their savings to make a living in times of high inflation. This, at least, is what the banks cited as the reason deposits at JP Morgan shrank by 8 percent and Wells Fargo by 7 percent. On the other hand, funds that are separate assets from a bank’s insolvency assets are apparently particularly popular. As the world’s largest asset manager Blackrock announced on Friday, it received $110 billion in the first quarter, which is why Blackrock’s client assets under management rose to more than $9 trillion.
A comparison between Blackrock and the banks may reveal a growing gap among Americans: The rich prefer to save in mutual funds, while JP Morgan is increasingly seeing payment defaults in the credit card business, for example, because poorer people can no longer finance their consumer spending. The bank called this a “normalization of arrears” on Friday. The mortgage lending business also fell by 36 percent – higher lending rates are dampening demand.
Still, the consumer business is one of JP Morgan’s great strengths. In the first quarter, it contributed $5.2 billion to net income, up 80 percent from the same quarter last year. That makes retail banking the biggest contributor, more important than investment banking, which returned almost flat at $4.4 billion. This shift in profit contributions is also interesting because JP Morgan has so far only done investment banking and corporate banking in Germany. For a few months now, however, she has been working from Berlin on offering the digital private customer business, which was successfully launched in Great Britain under the Chase brand, in Germany as well. JP Morgan wants to start doing this in Germany by 2025 at the latest.