Lending Association

Mixed results in America’s big banks earnings report for Q4 2023

The first significant earnings report cards from the end of 2023 for four of America’s six biggest banks mirrored the economy itself—resilient in places, weak in others, and marked by a big red warning flag. JPMorgan, Bank of America, Wells Fargo, and troubled Citi, confirming 20,000 job cuts, revealed their December 2023 reports.

The quartet disclosed setting aside billions of dollars to replenish a shortfall in a government insurance fund used in last year’s regional bank failures. The fund, financed by the industry, will see most big banks playing a role in topping it up.

The results also indicated pressure on revenue and earnings, with rising deposit retention costs affecting net interest margins and earnings growth. The banks collectively allocated over $8 billion to refill the Federal Deposit Insurance Corporation’s deposit insurance fund, taking a $16 billion hit after regional bank failures last year.

The quartet, being the country’s largest lenders, confirmed the fading boost from high official interest rates, which allowed them to charge more on loans and pay less for deposits. Non-interest costs and job cuts, particularly at Citi, are expected to be prominent.

Morgan Stanley and Goldman Sachs, more investment banks than consumer and commercial lenders, are set to report their 4th quarter and 2023 figures next Tuesday.

The December quarter trends in the US provide an early heads-up for Australian investors ahead of reports from local banks, with rising pressures on net interest margins expected to be more apparent this year.

While JPMorgan Chase’s profits fell in the fourth quarter, it posted a record annual profit of $49.6 billion, with net interest income up 19%. Bank of America’s net income fell over 50%, primarily due to fund fees and a decline in net interest income.

Wells Fargo was the only lender to post a jump in profits, thanks to cost cuts, but warned of a potential 7% to 9% decline in 2024 compared to the previous year. Citi surprised with a 4th quarter loss, citing FDIC charges and cash stockpiling for currency risks in Argentina and Russia.

All four lenders set aside more money to cover souring loans. Jamie Dimon, CEO of JPMorgan Chase, cautioned on inflation, expressing concern about higher rates due to the need for increased government spending on green energy, healthcare, and the military.

On the day, only Citi shares rose, up 1% due to the reiteration of job cut plans. Wells Fargo shares sold off with the warning about lower interest income, ending down 3.3% and 3.4% for the first two weeks of 2024. JPMorgan shares fell 0.7%, down 1.4% so far in 2024, and Bank of America shares lost 1%, down nearly 2% this year.