Big Banks Open The Q1 Earnings Season With A Bang

America’s biggest banks reported better than expected results on Friday, sending positive signals on how the industry is doing after the collapse of Silicon Valley Bank and New York's Signature Bank last month. JPMorgan Chase & Co JPM and Wells Fargo & Company WFC reported solid earnings with Citigroup Inc’s C revenue topping expectations but big questions remain about the sector’s health and a potential recession being in the near future.

Citi Reported A Strong First Quarter

Net income rose from $4.3 billion made during last year’s comparable quarter to $4.6 billion, resulting in earnings of $2.19 per share. Revenue of $21.45 billion was also better than Refinitiv’s expected average of $19.99 billion. Citi continues executing its restructuring plan away from international retail banking as it closed two divestitures during the quarter. When excluding these sales, net income dropped 19% YoY.

Higher interest rates fueled personal banking revenue that rose 18% YoY, with fixed income markets seeing revenue rise 4% YoY, but the gain was offset by declines in investment banking and equity market revenue. Total provision for loan losses rose 7% compared to previous quarter as it amounted to $1.98 billion, slightly above the Street estimate of $1.89 billion.

Citigroup CEO Jane Fraser stated that a “notable softening” in consumer spending was observed during the quarter, but the bank is capable of navigating the challenges ahead and therefore kept its full-year guidance despite management believing that it is now more likely that the U.S. will be entering a shallow recession later this year. 

JP Morgan Chase Posted Record First Quarter Revenue

JP Morgan topped analysts’ expectations as higher rates pushed net interest income to surge 49% compared to last year’s comparable quarter, due to higher rates. Adjusted earnings amounted to $4.32 per share, topping Refinitiv’s estimate of $3.41. 

Revenue rose 25% to $39.34 billion, topping the $36.19 billion estimate with net interest income amounting to $20.8 billion. Additionally, CFO Jeremy Barnum gave a positive guidance of net interest income being about $81 billion this year, which is about $7 billion more compared to $74 billion that was previously forecasted. 

The biggest U.S. bank by assets observed a 7% decrease in total deposits compared to last year’s quarter to $2.38 trillion, slightly topping the StreetAccount estimate of $2.31 trillion. But with recent inflows, deposits rose 2% compared to the previous quarter.

Credit costs were close to StreetAccount estimate as they amounted to $2.3 billion with JP Morgan building up reserves by a net $1.1 billion and booking $1.1 billion in net loan charge-offs.

The fixed income trading business also played a part in beating expectations, as it generated $5.7 billion in revenue or more precisely, $400 million more than expected. Equities trading revenue of $2.7 billion came below the estimate of $2.86 billion. Investment banking remained weak as IPO markets are still mostly closed with revenue plunging 24% to $1.6 billion.

Wells Fargo’s profit also topped estimates as it is proactively managing its exposures. 

Wells Fargo also benefited from higher interest rates despite still recovering from a scandal regarding its sales practices that resulted in fines and Fed-imposed asset cap.

Net-interest income, what Wells Fargo makes lending money minus what it pays out to customers, surged 45% from the same quarter a year ago, to $13.34 billion. Net income rose by more than 30% to nearly $5 billion compared to last year’s comparable quarter. Excluding one-time items, EPS amounted to $1.23 per share, topping Refinitiv’s estimate of $1.13 per share.

Wells Fargo reported a $643 million increase in the allowance for credit losses, setting aside $1.21 billion to cover for potential loan losses, after reducing its provisions by $787 million during last year’s quarter. 

After being $1.38 trillion at the end of last year, deposits dropped 2% at the end of March when the quarter ended. The commercial banking division saw average loans rise 15%, while commercial loans rose approximately 7% compared to last year’s quarter.

Banks Are Going Strong Despite Building Rainy Days Funds

These earnings reports are of special importance in estimating the damage made to the banking sector by the recent collapse of two lenders that could potentially slowdown loan growth throughout the economy. More news are ahead with The Goldman Sachs Group Inc GS and Bank of America Corporation BAC reporting results on Tuesday, while Morgan Stanley MS discloses its latest earnings report on Wednesday. As fears of a recession start to materialize in a turmoil created by the collapse of two mid-sized banks, even the biggest U.S. banking players are setting aside serious rainy-day funds, but for now, they are doing much better than analysts expected and are showing they are capable of navigating the upcoming economic slowdown.