Economy

What crisis? Big bank profits soar despite banking troubles 

Large U.S. banks reported massive earnings Friday, signaling that the biggest institutions largely shrugged off the banking crisis stemming from Silicon Valley Bank’s collapse. 

JPMorgan Chase, the largest bank in the nation, posted $12.6 billion in first-quarter profits, a whopping 52 percent increase from the same period last year. 

Wells Fargo’s quarterly profits rose 32 percent compared to the same period last year. Citigroup reported a 23 percent annual increase in profit, while PNC Financial Services’ profits rose around 18 percent. All of the big banks surpassed investors’ profit expectations. 

While the Federal Reserve’s interest rate hikes contributed to SVB’s failure — the bank loaded up on long-term treasury bonds that plummeted in value after rates rose — they’re helping the largest lenders. 

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JPMorgan, Citigroup and Wells Fargo, three of the four largest U.S. banks, credited the surprisingly strong profits to spiking interest income. Higher interest rates enabled banks to charge more for loans.

The banks added that their exposure to commercial real estate is relatively low. Analysts fear that small and midsize lenders — which hold most of those mortgages — could soon suffer from a wave of defaults as remote and hybrid work drives down the value of office buildings. 

A person walks past a Wells Fargo location in Philadelphia on May 11, 2017. (AP Photo/Matt Rourke)

Bank filings reveal deposit data 

Big banks had been expected to show deposit drops following last month’s bank runs and an influx of deposits into money market funds and other low-risk investments. 

But JPMorgan actually saw its deposits rise from $2.34 trillion to $2.38 trillion in the first quarter. PNC’s deposits grew slightly, Citigroup’s deposits remained flat and Wells Fargo’s deposits fell 2 percent. 

Commercial bank deposits fell by about $310 billion around the time of SVB’s collapse before recovering slightly in the final month of March, according to Federal Reserve data

That prompted concerns that more banks could go under.

Analysts pointed to $620 billion in unrealized losses on long-term investments in the banking system that would make it harder for banks to survive a surge in withdrawals. 

SVB’s failure prompted wealthy individuals and businesses to pull their money from midsize lenders, which faced the biggest threat of a bank run. They transferred their cash to the largest institutions that are seen as too big to fail. 

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“By definition, these are somewhat flighty deposits because they just came into us. So it’s prudent and appropriate for us to assume that they won’t be particularly stable,” JPMorgan Chief Financial Officer Jeremy Barnum said on an earnings call Friday. 

The rush of withdrawals slowed after Treasury Secretary Janet Yellen hinted that regulators would take action to protect all uninsured deposits if other midsize banks went under, like they did with SVB.  

Big banks last month banded together to give $30 billion in deposits to San Francisco’s First Republic Bank, which swiftly lost about $70 billion in deposits following the SVB collapse. The move was meant to restore confidence in the regional lender and the banking system more broadly. 

First Republic will report its earnings on April 24. The bank had been expected to reveal its balance sheet this week. 

Bank executives expressed confidence in regional banks Friday, noting that SVB faced a unique bank run from its client base dominated by tech firms and venture capitalists.

“Our franchise, and those of many other banks, operate with a broader business model and more diversified funding sources,” Wells Fargo CEO Charles Scharf said on an earnings call.

JPMorgan Chase & Co. Chairman and CEO Jamie Dimon
JPMorgan Chase & Co. Chairman and CEO Jamie Dimon answers questions during a House Financial Services Committee oversight hearing of the largest U.S. banks on Sept. 21, 2022.

Banks confirm lending slowdown

Big bank executives said Friday that they plan to pull back on lending and set aside more cash in case their existing loans go bad. 

Analysts have expressed concern that if bank lending slows to a crawl, a credit crunch could ravage the U.S. economy that relies on financing to grow and add jobs.  

“I wouldn’t use the word credit crunch,” JPMorgan CEO Jamie Dimon said on an earnings call Friday. “I just look at it as a kind of a thumb on the scale. It just makes the financing conditions a little bit tighter and increases the odds of a recession.”

Commercial lending by U.S. banks declined by nearly $105 billion in the final two weeks of March, the largest drop on record. 

Boom times for some: JPMorgan Chase profits jump 52% amid banking turmoil

There’s no shortage of signs that a recession is looming. 

Retail sales fell 1 percent in March as spending at a broad range of retail categories dropped. When adjusting for inflation, retail sales fell 2 percent over the last year, meaning consumers are buying fewer items.

Wholesale inflation fell 0.5 percent last month. That’s a sign that price hikes are finally coming to an end but also a warning that demand is falling rapidly. 

Federal Reserve staffers predicted last month that a “mild recession” will hit the U.S. economy starting later this year, followed by a recovery over the subsequent two years. Numerous economists have made similar calls.

Tags bank run Bank run banking crisis banking crisis banks Banks Citigroup deposits Inflation Interest rates JPMorgan JPMorgan Chase profits Recession Recession Silicon Valley Bank Silicon Valley Bank SVB Wells Fargo

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