Three major banks, JPMorgan Chase, Wells Fargo, and Citigroup, reported a decrease in net interest income during the first quarter, indicating that even the largest financial institutions are grappling with challenges in the current interest rate environment.
Net interest income, which measures the difference between what banks earn on their assets and pay out on their deposits, dropped by 4% at both JPMorgan and Wells Fargo, and by 2% at Citigroup.
JPMorgan experienced its first sequential drop in nearly three years, leading to a nearly 6% decline in its stock price. Citigroup’s stock fell over 2%, while Wells Fargo remained flat.
The decline in net interest income is attributed to “deposit margin compression and lower deposit balances,” as depositors seek higher yields and move their funds into products such as certificates of deposit, where banks must pay higher rates.
Despite the challenges, the big banks remain better positioned than their rivals to weather elevated interest rates and continue to earn profits from lending. For instance, Citigroup’s first-quarter net interest income exceeded expectations by $1 billion, and JPMorgan raised its estimate of net interest income for 2024.
However, both Wells Fargo and Citigroup reported higher average deposit costs. Wells Fargo’s average deposit cost rose to 1.74%, while Citigroup’s increased to 3.70%. This contributed to a 7% drop in overall profits for Wells Fargo and a 27% drop for Citigroup compared to the previous year.
Citigroup also provided updates on its restructuring efforts, announcing the elimination of 7,000 positions as part of a plan to reduce headcount by 20,000 by 2026.
While there were some positive aspects in the banks’ results, such as a decrease in money set aside for future loan losses and a surge in investment banking fees, concerns about the economic outlook persist. JPMorgan CEO Jamie Dimon warned about uncertain forces ahead, including geopolitical tensions, inflationary pressures, and potential actions from the Federal Reserve. He emphasized the importance of understanding the reasons behind higher interest rates, noting that healthy growth would be favorable.
Overall, the big banks navigate challenges while remaining vigilant about the economic landscape and its implications for their businesses.
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