US banks outperform expectations with interest income boosting profit at both Wells Fargo and Citi
Wells and Citi both saw profit come in comfortably ahead of market expectations as US banks weathered the storm prompted by the collapse of Silicon Valley Bank (SVB).
At Wells Fargo, revenue climbed 17 per cent to $20.7bn helping profit rise 32 per cent year-on-year to come in at $5.0bn. Markets expected revenue to be $20.1bn.
The bank’s strong performance was a result of higher than anticipated net interest income, which climbed 45 per cent, as higher interest rates continue to boost the lender.
Its net interest margin – the difference between what it pays out and receives in interest payments – stood at 3.20 per cent. Analysts at UBS said this should provide a “strong base” for its results throughout the year.
Chief executive Charlie Scharf commented: “We had strong results in the first quarter including revenue growth from both the fourth quarter and a year ago, and we continued to make progress on our efficiency initiatives.”
Citi meanwhile also beat market expectations with profit rising seven per cent year-on-year to $4.6bn. This included the gain from the planned sale of some of its businesses.
Citi’s income was boosted by loan growth in its US personal banking business and a strong performance from its fixed income team which helped offset a decline in investment banking.
CEO Jane Fraser Citi said “Citi delivered strong operating performance, showing good revenue growth and expense discipline despite the tumultuous environment for banks.
“Our robust and well-managed balance sheet was a source of strength for our clients and we continue making progress in executing our strategy,” she continued.
Deposits are in focus across US lenders as 2023 has seen a flood of funds coming into higher-yielding money market funds. This trend only accelerated with the collapse of SVB.
Citi saw a $36bn decrease in deposits compared to the prior quarter, although it remained mostly unchanged from the same time last year, while Wells reported a seven per cent fall in deposits year on year.
Wells also boosted provisions for credit losses. Credit loss provision hit $1.2bn, up from $957m last quarter, with the bank saying that most of the increase reflected concerns over commercial real estate loans.
Banks set aside loss provisions in case assets on the balance sheet turn bad. In total, Citi set aside $2.0bn including a more than $400m provision for unrealised losses on its bond portfolio.
JP Morgan also announced its results today, with profit rising over 50 per cent on the back of higher interest rates.