Big U.S. Banks Report Strong Results -- WSJ
January 15 2020 - 3:02AM
Dow Jones News
By David Benoit and Ben Eisen
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 15, 2020).
A healthy U.S. economy pushed up profits at America's biggest
banks, allowing them to grow even though falling interest rates
made lending less profitable.
Consumer borrowing and a rebound in investment-banking revenues
propelled JPMorgan Chase & Co. and Citigroup Inc. to
double-digit earnings growth in the final three months of 2019.
JPMorgan, the biggest U.S. bank by assets, reported its most
profitable year on record.
For a while, companies and consumers were telling different
stories about the state of the economy. Consumers continued to
borrow and spend at a brisk pace, while companies were holding back
due to fears that growth was on the wane. A trade deal with China
and an improved outlook for the U.S. economy have eased those
fears, boosting banks' businesses that serve corporate clients.
"The U.S. consumer remains in very strong shape, both from a
credit perspective and spending sentiment," JPMorgan Chief
Financial Officer Jennifer Piepszak said on an earnings call with
analysts Tuesday. Among the bank's corporate clients, "sentiment is
at least certainly better than it was six months ago. So we have a
constructive outlook as we're heading into 2020."
The Federal Reserve cut interest rates three times in 2019, and
futures markets predict at least one more cut this year. Falling
interest rates tend to crimp the income that banks earn extending
credit, but they also can increase demand for loans.
Early indications are that banks made the transition to lower
rates smoothly, largely thanks to less rate-sensitive areas of
their businesses. Both JPMorgan and Citigroup boosted revenues from
nonlending operations by more than 20% in the quarter, earning
higher fees in advisory businesses such as investment banking and
wealth management.
JPMorgan's total profit rose 21% to $8.52 billion in the fourth
quarter, bolstered by a 31% revenue jump in the corporate and
investment bank. (The bump was partly due to a dismal trading
quarter across the industry at the end of 2018.)
Citigroup's profit climbed 15% to $4.98 billion. Trading revenue
rose 31%, and its equity underwriting business jumped 33% because
of its work on big public offerings.
JPMorgan earned higher fees lending to and catering to corporate
clients, while Citigroup's business of moving money around the
globe for businesses posted gains in the fourth quarter. Both banks
said those businesses got a boost late in the quarter when the U.S.
and China reached a limited trade deal after months of tense
negotiations.
Still, the U.S. consumer continued to drive much of the gains.
Banks' credit-card businesses, in particular, were a bright spot.
JPMorgan and Citigroup reported a rise in credit-card spending and
loan balances in the fourth quarter, a period that encompassed one
of the strongest holiday shopping seasons in years.
"The consumer is in very good strength," JPMorgan's Chief
Executive James Dimon told reporters. "Their wage growth is up.
Their home values are up. And the amount of the income they have
that goes to servicing interest expense is as low as it's been in
50 years."
JPMorgan said its volume of mortgage originations doubled from a
year earlier. Originations also jumped in Citigroup's much smaller
home-lending unit.
Citigroup displayed strength around the globe, including a 10%
gain in revenue from Asia amid the U.S.-China trade war and
protests in Hong Kong. It also surpassed a profitability target
analysts doubted it could hit.
It was a different story at Wells Fargo & Co., which
reported a 53% drop in fourth-quarter profit after setting aside
another $1.5 billion to cover costs associated with its 2016
fake-account scandal.
The bank brought on Chief Executive Charles Scharf in October to
repair its damaged reputation and rebuild its relationships with
regulators. "Wells Fargo is a wonderful and important franchise
that has made some serious mistakes," he said in a statement.
Wells Fargo's fourth-quarter results show it still has work to
do to regain customers' trust. Deposit costs rose despite a drop in
interest rates that allowed its rivals to pay less, indicating
savers are inclined to keep their money elsewhere.
The lender's yield on interest-bearing deposits was 0.85% in the
fourth quarter, up from 0.77% a year earlier when the Fed's
interest rates were higher.
Write to David Benoit at david.benoit@wsj.com and Ben Eisen at
ben.eisen@wsj.com
(END) Dow Jones Newswires
January 15, 2020 02:47 ET (07:47 GMT)
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