Big banks report soaring profits despite recent turmoil

The corporate flag for JPMorgan Chase flies at corporate headquarters in New York in this May 14, 2012 file photo. (AP/Mark Lennihan)
The corporate flag for JPMorgan Chase flies at corporate headquarters in New York in this May 14, 2012 file photo. (AP/Mark Lennihan)

Some of the largest U.S. banks reported banner first-quarter earnings Friday that exceeded investor expectations.

The banks' earnings were bolstered by higher interest rates, which allowed them to charge more for loans above what they pay out on deposits. The robust reports were also a reflection that the collapse of Silicon Valley Bank and Signature Bank last month appears to have strengthened the biggest banks by driving customers toward larger institutions perceived to be more stable.

"These were the most watched bank earnings announcements in over a decade, with market participants scouring the results looking for signs of cracks in the U.S. banking sector. Those analysts looking for signs of the banking crisis were greatly relieved to not find any," said Octavio Marenzi, chief executive officer of the consulting firm Opimas LLC, in an email.

"What crisis?" analysts at UBS titled their report after JPMorgan Chase, Wells Fargo and PNC Financial reported their results.

JPMorgan Chase, the nation's largest bank, reported revenue that rose virtually across the board, helping it pull in $12.6 billion in profit, a 52% jump from the same quarter a year earlier. Its customer deposits rose slightly in the first quarter from the previous quarter, with inflows picking up in particular after smaller competitors saw depositors withdraw large amounts of cash, the bank said.

In a call with reporters, JPMorgan Chief Financial Officer Jeremy Barnum said most of the new deposits flowed into new business and company bank accounts opened in the past month. The new deposits reversed the flow of deposits exiting the bank for several quarters.

"We had a rough spell in March, but things are looking better now," Barnum said.

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," Chief Financial Officer Mark Mason said in a conference call Monday.

Others weren't so sure.

"We're being realistic about the stickiness," 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."

Barnum's boss, CEO Jamie Dimon, who has taken a leading role in bailing out smaller lenders, said the banking crisis was distinct, but that financial conditions were likely to tighten as banks, including JPMorgan, become more conservative. "We are going to eventually have a recession, but that may be pushed off a bit," he said.

Citigroup, the country's third-largest lender, reported a profit of $4.6 billion in the first quarter, up 7% from the same period last year and well above forecasts. Revenue jumped 12% from the previous year, which came "despite the tumultuous environment for banks," Jane Fraser, the bank's chief executive, said in a statement.

The bank's loan book was roughly unchanged and deposits fell 3% from the previous quarter.

Wells Fargo also surpassed analysts' expectations, reporting a profit of nearly $5 billion in the first quarter, a 32% increase from a year ago. Rising interest rates lifted the bank's earnings as its loan portfolio grew, led by gains in personal lending and higher credit card balances.

There was little sign of nervous depositors fleeing to the safety of the lender, the nation's fourth-largest bank. The average deposits at Wells Fargo dropped $24 billion, or 2%, from the previous quarter.

Charlie Scharf, the bank's CEO, said Wells Fargo was "glad to have been in a strong position to help support the U.S. financial system" during the industry's recent turmoil. The bank's priority, he said, is improving its internal controls; the bank has for years been battered by regulators and has paid billions of dollars in fines for a wide variety of misdeeds.

Analysts are closely watching banks for signs of tighter lending that could lead to a credit crunch, but Wells Fargo "hasn't substantially changed our credit risk appetite" over the last quarter, according to Michael P. Santomassimo, the bank's chief financial officer.

"Consumers and many of the businesses that are our clients came into this environment in a very strong position," he said. "Consumers continue to spend."

Wells Fargo, which until recently was the U.S.'s biggest mortgage lender, set aside $643 million for potential loan losses, specifically commercial real estate loans, credit cards and auto loans.

The bank has said it plans to drastically reduce its mortgage lending business. Higher interest rates have chilled the housing market, and Wells said home lending was down 42% from the same quarter last year.

PNC Financial, the country's sixth-largest bank, said the industry volatility ended up playing to its strengths. Although it has been swept up in the turmoil surrounding midsize banks, PNC, a so-called super regional lender, is bigger and more diversified than its smaller rivals. PNC played savior in last month's rescue plan for the ailing First Republic Bank, putting $1 billion in deposits into the bank as part of a $30 billion deal engineered by Dimon.

PNC's deposits grew slightly last quarter -- but were down compared with a year ago -- as its net income rose to $1.7 billion, up 9%. Its revenue dropped 3%, to $5.6 billion, which the bank attributed in part to higher funding costs.

Investors welcomed the batch of bank reports, their first look inside the books of the industry bellwethers since the failure of Silicon Valley and Signature Bank, sending share prices higher. JPMorgan's stock jumped $9.74, or 7.6%, to close Friday at $138.73.

"The banking system is very sound -- it's stable," Lael Brainard, director of President Joe Biden's National Economic Council, said this week at an event in Washington. "The core of the banking system has a great deal of capital."

But staff at the Federal Reserve projected that general banking turmoil would spur a recession later this year, according to minutes of a policymakers' meeting last month.

"Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year with a recovery over the subsequent two years," the minutes showed.

Information for this article was contributed by Rob Copeland and Stacy Cowley of The New York Times, Ken Sweet of The Associated Press and Katherine Doherty, Jenny Surane, Hannah Levitt, Max Reyes and Felice Maranz of Bloomberg News (TNS).

Upcoming Events