Wells Fargo beats expectations thanks to rising rates as Citi’s profits fall 36 per cent on dealmaking slowdown
Citi struggled with rising costs and falling fees in the second quarter while its Wall Street rival Wells Fargo benefitted from higher interest rates.
Citi saw its profit fall 36 per cent year on year as it was hit by the global decline in dealmaking, but its performance was still better than analysts had predicted thanks to a strong performance from its consumer banking unit
The bank’s revenue fell one per cent due to a weak performance from its Institutional Clients Group, which includes its trading and investment banking divisions.
Revenue from corporate and investment banking fell 44 per cent compared to last year while revenue from its trading business also fell 13 per cent.
Citi boss Jane Fraser noted “the long-awaited rebound in investment banking has yet to materialise, making for a disappointing quarter.”
On top of the fall in revenue, operating expenses climbed nine per cent while cost of credit, which includes loss provisions and credit losses, climbed 43 per cent to $1.8bn. The increase was driven by the “continued normalisation” in credit losses.
Banks are increasingly concerned with the impact of rising rates on borrowers, with many economists predicting that a recession in the US is just around the corner.
Wells Fargo
In contrast, rising interest rates helped Wells Fargo offset a steep rise in credit loss provisions. The Wall Street giant beat expectations in its second quarter earnings, with net income climbing 57 per cent to $4.9bn and revenue jumping 20 per cent to $20.5m.
This came as the bank reaped the benefit of rising interest rates, with net interest income – the difference between what the bank pays out and receives in interest payments – rising 29 per cent to $13.2bn.
Wells Fargo upped its guidance for full year net interest income to be around 14 per cent higher than last year’s figure of $45bn. Previously it had guided for a 10 per cent boost.
These gains helped Wells to offset a near tripling in loss provisions, which reached $1.7bn. It noted this was primarily for commercial real estate office loans as well as higher credit card balances.
Wells Fargo is seen as the Wall Street bank most exposed to the downturn in commercial property.
Boss Charlie Scharf said “while we haven’t seen significant losses in our office portfolio to-date, we are reserving for the weakness that we expect to play out in that market over time.”
JP Morgan also reported second quarter results today with profit rising by two thirds thanks to rising interest rates.