JPMorgan Chase and other large US banks on Friday reported bumper profits in the first three months of 2023 as they raked in billions of dollars in deposits from customers fleeing smaller lenders following Silicon Valley Bank’s collapse in March.
The upbeat first-quarter earnings from JPMorgan, Citigroup and Wells Fargo highlight how bigger US banks have benefited at a time of broader fears over the stability of regional banks after the failure of SVB and Signature Bank.
The higher profits also underscored how banks are making hay after a year of interest rate rises from the Federal Reserve, which lenders have used to bolster earnings rather than significantly increasing rates for depositors.
JPMorgan led the pack on Friday, with profits in the first three months of 2023 up more than 50 per cent on the back of higher earnings from lending, known as net interest income. The bank also lifted its outlook for net interest income for the rest of 2023 by almost 10 per cent to about $81bn.
The largest US bank by assets added $37bn in new deposits during the first three months of 2023, bringing total deposits to $2.38tn, defying analyst expectations of a decline.
Wells Fargo analyst Mike Mayo wrote in a research note that the results showed “no evidence of a banking crisis . . . it seems that JPM has been a port in the storm”.
JPMorgan shares were up 7 per cent in early-afternoon trading in New York.
Before the collapse of SVB, JPMorgan and other large banks had been steadily losing deposits as customers transferred their cash to higher-yielding products such as money market funds in order to benefit from the Fed’s rate rises.
Meanwhile, Citigroup also said it had seen roughly $30bn of deposit inflows in March, helping it to report a modest decline of 2.5 per cent to $1.33bn for the quarter overall, which slightly beat analyst expectations.
“We did see a pick-up from March 7 to the end of the quarter,” said Citi chief financial officer Mark Mason said on a call with reporters. “It was associated with the sector turmoil.”
Citi reported higher profits than expected on the back of strong consumer spending and corporate activity.
Wells reported higher than expected first-quarter earnings too but warned of potential losses in commercial real estate lending. Deposits fell 2 per cent quarter on quarter to $1.36tn.
“We did see some moderate inflows from the few specific banks that have been highlighted in the press but those inflows have abated,” said chief executive Charles Scharf.
Citi shares were up 4.3 per while Wells stock was 0.4 per cent lower, having rallied earlier in the trading session.
Pittsburgh-based PNC, a so-called superregional US bank, also reported earnings on Friday that showed average deposits had edged slightly higher in the quarter to $436bn.
Despite the upbeat earnings, the large banks struck a cautious tone for the year ahead.
JPMorgan chief executive Jamie Dimon told analysts that “the short-term read is higher recessionary risk” and that “people need to be prepared for the potential of higher rates for longer”.
Jeremy Barnum, JPMorgan chief financial officer, said the lender did not expect to hold on to all of the recent deposit inflows given that they were “somewhat flighty”.
JPMorgan also reported a net reserve of $1.1bn for credit losses, a sign that the bank is preparing for losses on loans to creep up.
Citi set aside $2bn for loan losses in the quarter, which was higher than expected. Mason said the bank’s relatively strong results had not changed his view that the economy was likely to enter a recession in the second half of the year.
Bank of America reports results on Tuesday while Goldman Sachs and Morgan Stanley, which have businesses that skew more towards investment banking, trading and asset management, report earnings on Tuesday and Wednesday, respectively.
A number of regional banks whose share prices have been hit following SVB’s collapse also report results next week.
Dimon said “you’re going to see next week, [that] regional banks have pretty good numbers”.