JPMorgan, Citigroup and Wells Fargo reaping gains
Each are benefiting from rate hikes that contributed to Silicon Valley Bank's demise
JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. are reeling in windfalls from higher interest rates that upended smaller lenders last month.
The three giant U.S. banks, which kicked off the industry's quarterly earnings reports Friday, are each finding ways to benefit from rate hikes that contributed to the collapse of Silicon Valley Bank in March and left customers at regional lenders racing to move uninsured deposits to safe havens.
JPMorgan posted a surprise 2% increase in deposits despite what analysts predicted will be a broader migration of savers to higher-yielding investments. Citigroup boasted one of its best fixedincome trading hauls in a decade as clients reacted to changing rates. And all three firms said income from lending jumped from a year earlier after Federal Reserve hikes.
The benefits reported by the nation's largest banks contrast with the experience at regional lenders that saw a flood of withdrawals and precipitous stock drops last month, as shareholders worried that rising rates are eroding the value of the banks' assets.
Still, Friday's reports offered smaller firms a few silver linings, showing that even as big banks start to pay depositors more, they aren't upping the competition yet.
“We saw significant new account-opening activity and meaningful deposit and money-market fund inflows,” JPMorgan Chief Financial Officer Jeremy Barnum said on a conference call to discuss results.
JPMorgan — the nation's largest lender — rose 7% as of 12:50 p.m. in New York trading, as Citigroup gained 4.2%. Wells Fargo was little changed.
Fed rate hikes aimed at taming inflation spelled pain for some smaller, regional banks. Many lenders plowed the extra cash they got from depositors in the pandemic into safe assets — such as Treasuries and mortgage-backed securities — to get a little bit of yield.
But the Fed's moves caused the value of those assets to fall. And when customers at firms such as SVB tapped into their savings, the banks were forced to sell assets at losses to keep up with demands for cash.
Big banks, which were largely immune to those pressures and weren't forced to sell assets at a discount, said Friday that the higher rates are fueling revenue from lending operations.
First-quarter net interest income surged 49% at JPMorgan, prompting the bank to boost its forecast for such revenue to $81 billion this year. That compares with a January prediction of $73 billion.
At Wells Fargo, that revenue line jumped 45%, and at Citigroup 23%, compared with a year earlier. And Citigroup's fixed-income traders unexpectedly boosted revenue 4% — raking in $4.5 billion to help the bank defy analyst predictions that company wide profit would drop.
One mystery is how long the influx of deposits may last.
Citigroup believes inflows from corporations and midsize companies amid the financial industry's recent turmoil “are quite sticky,” CFO Mark Mason said on a conference call Monday.
Others weren't so sure. “We're being realistic about the stickiness,” JPMorgan's Barnum said. “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.”
Meanwhile, BlackRock Inc. Chief Executive Officer Larry Fink said Friday that deposits will keep bleeding out of banks amid concerns about regional lenders.
“More and more deposits are leaving and they're going into ETFs and into any form of cash and money market funds,” he said. “This type of dislocation is just going to create more and more opportunity for us.”