Despite the banking crisis brought on by the failure of two local institutions, JPMorgan Chase & Co., Citigroup, and Wells Fargo & Co. posted exceptional earnings in the first quarter of 2023 due to greater interest payments. As the economic outlook grew gloomier, these banks were able to ignore the crisis and lay aside billions of dollars in case of loan defaults.
Despite rate rises, consumer and business spending remained constant, helping all three banks surpass Wall Street projections. However, they also noted indications of a slowdown and took appropriate precautions. In Particular, JPMorgan experienced a rise in its shares, which increased by 7.6%, marking the largest one-day percentage gain since November 2020.
In response to growing concerns about an economic downturn brought on by the US Federal Reserve's aggressive interest rate hikes to combat inflation and the recent upheaval brought on by the bankruptcy of two mid-sized banks, banks are currently increasing their rainy day funds.
JPMorgan CEO Jamie Dimon warned that although the US economy remains strong, the recent banking crisis could make lenders more cautious and impact consumer spending. "The storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks," Dimon said.
JPMorgan exceeded market estimates by reporting first-quarter profit that increased by 52% to $12.62 billion, or $4.10 per share. From the previous year, its loan loss provisions rose by 56% to $2.3 billion. The amount a bank makes from lending, or net interest income, increased by 49%. Additionally, the bank experienced a rise in deposits in the first quarter as a result of clients moving their funds to larger institutions due to concerns about the stability of local lenders.
Citigroup also beat Wall Street expectations, thanks to higher interest payments from borrowers, but CEO Jane Fraser told analysts on a conference call that the U.S. is more likely to enter a mild recession later this year. "That could be exacerbated in depth and duration in a more severe credit crunch," Fraser said. In contrast to the $138 million reserve release declared a year earlier, Citigroup earmarked $241 million against probable loan losses.
In contrast, Wells Fargo increased its reserve release from the $787 million recorded in the same period last year to $1.21 billion during the quarter to cover future loan losses. This provision comprised an increase of $643 million in the allowance for credit losses, which was primarily caused by an increase in lending for commercial real estate, particularly office loans, as well as a rise in credit card and vehicle loans.