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Updated January 13th, 2024 at 12:38 IST

Major US banks grapple with lower profits amid one-off charges

The period was characterised by signs that the income boost from high-interest rates is waning, coupled with emerging concerns about consumer loans turning sour

Reported by: Business Desk
Citigroup
Citigroup | Image:Citigroup
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US Banks in focus: Major US banks, including JPMorgan, Wells Fargo, Bank of America, and Citigroup, reported diminished profits marked by special charges and cost-cutting measures, in the fourth quarter. 

The period was characterised by signs that the income boost from high-interest rates is waning, coupled with emerging concerns about consumer loans turning sour.

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While the banks acknowledged the challenge, they expressed optimism about the resilience of American consumers, despite defaults on consumer loans approaching pre-pandemic levels. 

Analysts noted that this phase represents a "credit normalisation," with banks maintaining robust reserves to navigate potential economic stress.

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The Federal Reserve's rate hikes last year aimed to control inflation, but with the pace of price increases slowing, questions about potential interest rate cuts and the economy avoiding a recession loom large.

Jamie Dimon, CEO of JPMorgan, a key indicator for the economy, acknowledged consumer spending resilience but cautioned about potential inflationary pressures from government spending. He also highlighted uncertainties related to Fed rate cuts and global disruptions due to geopolitical tensions.

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Wells Fargo's CFO, Mike Santomassimo, echoed concerns about rate cuts, stating they introduce more market uncertainty than usual.

Despite an initially positive market response, with JPMorgan shares gaining and Citigroup and Bank of America experiencing slight declines, the broader industry, as represented by the S&P 500 index, showed a 0.98 per cent decrease.

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Major banks collectively allocated over $8 billion to replenish the government's deposit insurance fund, which suffered a $16 billion hit following the failures of Silicon Valley Bank and two other lenders last year.

Citigroup, undergoing a major reorganisation, reported a surprising $1.8 billion loss, driven by charges and risk coverage for currency volatility in Argentina and Russia. Citigroup plans to cut 20,000 jobs over the next two years.

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Wells Fargo, in the midst of a turnaround effort, disclosed a $969 million expense for job cuts and a $1.9 billion deposit insurance fund charge.

While the core revenue picture was mixed, high rates in the previous year positively impacted banks' net interest income (NII). 

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However, as the Federal Reserve pauses rate hikes and loan growth slows, the NII's growth appears to be faltering.

Investment banking emerged as a bright spot, with BofA's investment banking fees up 7 per cent, and JPMorgan's climbing 13 per cent, fueled by robust equity and debt underwriting.

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Despite challenges, the banks remain cautiously optimistic about navigating the evolving economic landscape. Concerns about souring loans and potential impacts on credit trends linger, prompting some analysts to suggest building stronger reserves in the current environment.

(With Reuters Inputs)

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Published January 13th, 2024 at 12:38 IST

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