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US banks see mixed profits, little trade war hit so far
NEW YORK, July 14, 2018 (BSS/AFP) – Clients of giant US banks are
increasingly nervous about growing trade tensions, but are not yet
significantly curtailing business activity due to the uncertainty, banks said
Friday after reporting mixed earnings.
JPMorgan Chase chief executive Jamie Dimon cautioned that “There are
unpredictable outcomes when you start skirmishes like this with multiple
countries.”
“It’s a worry,” he told reporters in a conference call, but “I don’t know
if I’d use the word ‘major’ yet.”
Citigroup chief financial officer John Gerspach agreed with his
counterparts that the concerns are not yet driving business decisions.
“When you get into this kind of rhetoric, it does impact sentiment,” he
said. “It’s going to slow down decision making in some cases, but that hasn’t
translated yet into anything we’ve seen.”
The comments came as the two major US banks reported earnings that easily
topped analyst expectations, in contrast to slumping Wells Fargo which badly
underperformed forecasts.
The banks are among the first major companies to report results in what is
expected to be a strong second-quarter earnings season thanks to US tax cuts
and a humming American economy.
However, a series of trade battles launched by US President Donald Trump
against key trading partners, including China and the European Union, have
clouded the overall business outlook.
Another worry particular to bank stocks is whether the benefits from higher
Federal Reserve interest rates are ebbing. Higher interest rates boost bank
profits by allowing them to charge more for loans. However, as rates continue
to rise, banks also must pay more to depositors.
A note from S&P Global credit analyst Brendan Browne this week warned that
the gains for banks from higher interest rates “are likely to diminish,
because we expect deposit rates to rise more materially over the next year.”
Banks will need to sweeten the incentives for depositors to compete with
improved rates for certificates of deposit and money market mutual funds,
Browne said in an interview.
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JPMorgan, the biggest US bank by assets, reported an 18.3 percent surge in
net income compared to the year-ago period to $8.3 billion. Revenues came in
at $28.4 billion, up 6.5 percent.
Highlights included increases in net interest income following two Fed rate
hikes this year, and a rise in overall loans compared with the year-ago
period, a sign of strengthening economic conditions.
– More regional trade? –
Citigroup profits jumped 16 percent in the second quarter to $4.5 billion
due to overall loan growth and lower tax payments. Both main divisions,
global consumer banking and institutional client services, had higher
profits.
Revenues came in at $18.5 billion, up two percent.
Gerspach said Citigroup has seen an uptick in activity within Asia that
could pick up further if the US-China clash worsens.
“If it does emerge that there is some slowdown in trade between China and
the US, what we are seeing is that there is growth in trade flows elsewhere
in the world,” he said. “In particular, we’re seeing a lot of growth in trade
flows just in the Asia corridor.”
Citigroup has hired additional staff for China desks in India and South
Korea, Gerspach said.
The big laggard was Wells Fargo, which still has not completely found its
footing following a fake accounts scandal that surfaced in 2016, prompting
numerous fines, government probes and lawsuits.
Net income fell 11.4 percent to $5.2 billion, and there was a drop in
overall deposits and loans.
On the positive side, the company notched an increase in net interest
income, indicating it also benefited from higher interest rates.
Wells Fargo has replaced key executives, revamped some pay incentive
policies to improve governance, and spent on marketing to emphasize these
improvements.
“During the second quarter we continued to transform Wells Fargo into a
better, stronger company for our customers, team members, communities and
shareholders,” said Wells Fargo chief executive Tim Sloan.
Shares of JPMorgan finished down 0.5 percent, while Citigroup dropped 2.2
percent and Wells Fargo 1.2 percent.
BSS/AFP/HR/1005