Some of the biggest US banks said on Friday that increased interest rates helped their bottom lines and painted a picture of a robust economy with signs of life in recently depressed industries like deal-making.
However, they also foresaw dangers, including spending cuts by American consumers and losses accumulating in areas like credit cards and office commercial real estate.
Investors shrugged off their initial excitement for JPMorgan Chase, Wells Fargo, and Citigroup reports, thinking that this was likely the best they would see for some time.
In order to assess the difference between what banks make on loans and pay out on deposits, JPMorgan Chase JPM.N and Wells Fargo WFC.N reported substantial rises in net interest income that boosted earnings.
Gains in interest income, however, were offset by weakening in Citigroup’s (C.N) trading division.
Big Banks Experience Reduced Deposits, Impacting Earnings
Other banks that are more reliant on Wall Street operations, such Goldman Sachs and Morgan Stanley, will probably also experience this difficulty when they release their financial results the following week.
Separately, the largest asset manager in the world, BlackRock BLK.N, handily surpassed second-quarter earnings projections but revealed a slowdown in capital inflows.
State Street Corp. (STT.N), a US custodian bank, exceeded profit forecasts for the second quarter despite interest income declining by 10% on a quarterly basis due to lower average non-interest bearing deposit balances, despite an increase in interest income of 18% year over year.
On its results call, State Street warned of a further decrease in net interest income of 12 to 18% on a sequential basis, caused by reduced deposit levels.
Deposits at big banks have been declining as people relocate their money to places with better returns.
While JPM’s shares increased 0.6%, State Street’s shares closed down 12%. Citi sank 4% and BlackRock dropped 1.5%, while Wells shares slid 0.3%.