US banks Wells Fargo, Citi and JP Morgan continue to benefit from higher interest rates
US banks are still feeling a healthy tailwind from higher interest rates as some of the nation’s largest lenders bumped up their guidance for the remainder of the year.
In results covering the three months to September, Wells Fargo, Citi and JP Morgan reported that net interest income – the difference between what banks pay out and earn on interest payments – climbed ever higher.
At Wells Fargo net interest income climbed eight per cent on last year to $13.1bn. The bank now expects to make around 16 per cent more in interest income than it did last year. It previously guided for a 14 per cent income boost.
Combined with a drop in expenses, higher interest income helped profit at Wells Fargo to climb over 60 per cent to $5.8bn.
“Our revenue growth from a year ago included both higher net interest income and noninterest income
as we benefited from higher rates and the investments we are making in our businesses,” boss Charlie Scharf said.
Citi also performed better than expected, with revenue in the quarter climbing to over $20bn – compared to $18.5bn last year – partly on the back of higher interest rates.
The bank cited strong net interest income growth in its investment banking and personal banking divisions.
JP Morgan meanwhile reported a 30 per cent increase in net interest income. Across the year as a whole JP Morgan expects net interest income of $88.5bn, up from previous guidance of around $87bn.
Shares in all three banks were trading higher before the opening bell on Wall Street.
The upgrades came despite predictions from analysts that the boon from higher interest rates might come to an end as lenders faced greater competition for deposits. So far investors have poured over $1trn into higher-yielding money market funds, putting the sector on course for a record year.
However, the higher cost of borrowing also risks bringing about an increase in defaults and delinquencies.
While JP Morgan lowered its provisions for credit losses year-on-year, provisions increased significantly at both Wells Fargo and Citi.
At Wells Fargo, provisions for credit losses increased by over 50 per cent to $1.2bn, primarily due to issues in the commercial real estate market and higher credit card balances. The bank revealed that nonperforming loans were up 17 per cent.
“While the economy has continued to be resilient, we are seeing the impact of the slowing economy
with loan balances declining and charge-offs continuing to deteriorate modestly,” Scharf said.
At Citi meanwhile credit lossess climbed 85 per cent on last year, bringing total cost of credit to $1.8bn. It said this was driven by the “continued normalisation” in net credit losses and volume growth in its cards business.