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Citigroup and Bank of America became the latest big US banks to report better than expected quarterly earnings on Tuesday, adding to hopes among investors that the US is heading for an economic “soft landing”.
Third-quarter profits at the second- and third-largest US banks fell compared with the same quarter a year ago, echoing declines at peers JPMorgan Chase and Wells Fargo, which reported results on Friday.
But although earnings have been decreasing — as banks have belatedly passed on higher interest rates to savers and loan losses have started to rise along with debt levels — the falls were less severe than analysts had feared.
Citi delivered quarterly profits down 9 per cent to $3.2bn, compared with the $2.6bn analysts had been expecting, as a revival in investment banking helped offset rising loan losses.
BofA’s earnings fell 12 per cent to $6.9bn, far better than the 22 per cent drop that analysts had expected.
Although the US Federal Reserve has now started cutting interest rates, investors have been fretting about whether the central bank’s previous aggressive action to tackle inflation would tip the US economy into recession.
Last week’s earnings from JPMorgan and Wells Fargo, which were buoyed by continued consumer spending and an uptick in corporate dealmaking, were interpreted as a sign that the US economy could instead be heading for a soft landing.
US bank stocks on Friday hit their highest level since before the collapse of Silicon Valley Bank.
In the latest quarter, Citi set aside 45 per cent more for loan and credit losses than it did a year ago, at $2.7bn.
But turnarounds in its investment banking and wealth management divisions — where Citi has brought in high-profile executives from JPMorgan and BofA — helped lift earnings.
Citi’s investment banking fees rose by 44 per cent to $999mn, with its investment bankers having secured roles on high-profile deals including the buyout of French pharmaceuticals group Sanofi’s $16bn consumer business and consumer group Mars’s $36bn acquisition of the maker of Pringles and Pop Tarts, Kellanova.
Revenues in Citi’s wealth division increased 9 per cent to $2bn, its best quarter since the bank began breaking out results for the unit five years ago.
Wall Street businesses also drove BofA’s earnings gains, with investment banking fees up 18 per cent from the same period a year ago and revenue from buying and selling stocks, bonds and other financial instruments for clients 12 per cent higher.
Lending revenue, however, fell 4 per cent, as the bank said that activity from its corporate customers was consistent with a “lower growth economy.”
BofA chief executive Brian Moynihan told analysts that the bank continued to benefit from resilient consumer spending. The bank lowered its provision for credit losses from consumer loans by $100mn from a year ago to $1.3bn.
“This is not to say that consumers are not worried about higher prices — they are,” said Moynihan. “But overall spending activity is fine and the US consumer is doing fine.”
https://www.ft.com/content/4f3e9cd7-d663-4173-9164-186ef382b860
