Higher interest rates boost US banks’ profits

The US Federal Reserve is trying to control inflation by raising interest rates. The tighter monetary policy entails the risk that the economy will grind to a halt. However, it plays into the hands of major financial groups like JPMorgan and Citi when it comes to lending money.

Despite the risks of a recession and the recent turbulence in parts of the financial sector, major US banks JPMorgan Chase, Citigroup and Wells Fargo have had a good start to the new year. The financial institutions benefit from the rate of the central bank, the Fed, whose rate hikes in the fight against high inflation make borrowing significantly more lucrative.

JPMorgan delights investors

Market leader JPMorgan earned about $ 12.6 billion (11.2 billion Swiss francs) in the first quarter, 52 percent more than a year earlier, announced Friday in New York. This was well received by investors and the stock was up five percent at the start of US trading.

Net interest income at the largest US financial institution increased by nearly half to $20.8 billion. Total revenue under management grew by a quarter to more than $39.3 billion. The bank’s figures exceeded analysts’ average expectations.

JPMorgan also saw a slight pick-up in deposits after the worrying collapses of smaller US regional banks Silicon Valley Bank and Signature Bank in March. Insecure US customers moved their money to larger banks that are considered systemically important and more tightly regulated.

Higher reserves

But even big banks like JPMorgan, which regulators judge to be well-capitalized, are gearing up for a recession. In the first quarter, the major bank set aside nearly $2.3 billion for impending loan defaults, more than one and a half times as much as in the same period last year.

Management explained this with a worsened economic outlook. As consumers in the US continue to spend, and companies are doing well, JPMorgan boss Jamie Dimon said. “However, the storm clouds we witnessed over the past year remain on the horizon and the turmoil in the banking sector exacerbates these risks.”

Citigroup also with higher interest income

JPMorgan’s competitor Citigroup also earned well at the beginning of the year thanks to higher interest income. In the three months to the end of March, net income rose seven percent year-on-year to $4.6 billion (CHF 4.1 billion), the money house announced in New York on Friday.

Overall, sales grew 12 percent to $21.4 billion. With this, Citi exceeded expectations. The stock was up about 2 percent in early trading. Citi also increased loan loss provisions and set aside more than $240 million for impending loan defaults.

At Wells Fargo, profit rose by almost a third to nearly $5.0 billion (Swiss francs 4.5 billion).

(yam/sda/awp/dpa)