US banks post big profits
Saturday, 01 18 2020, Category: Banking, Country: United States
So far, it appears 2019 was another record year for Wall Street.
Trading of stocks and bonds rebounded after a terrible end to 2018 and consumers spent tonnes of money on their credit cards, buoyed by a strong job market and steady economic growth. On Tuesday, JPMorgan Chase reported a record annual profit, while Citigroup posted its best results since before the Great Recession.
“Given record-high equity prices, very low unemployment, a growing economy at about 2 per cent, a stable US dollar, and positive developments in trade, it is not surprising to see the results that are coming in,” said Mark Doctoroff, global co-head of the Financial Institutions Group at MUFG.
The biggest concern going forward is that lower interest rates will slow down Wall Street’s decade-long profit party. The Federal Reserve cut interest rates three times in 2019, each time by a quarter of a percentage point. That’s started to cut into bank’s interest income — the difference between what a bank charges for loans and what it pays out on deposits — which has been a major profit driver in the last couple of years.
The improved results at JPMorgan and Citigroup were partly attributed to a surge in trading revenue. In late 2018, plunging stock markets and fears of a possible recession weighed on bank profits in the final quarter. In 2019, the Fed’s rate cuts and a “Phase 1” trade agreement between China and the US helped alleviate recession fears. Revenue from trading jumped 55 per cent at JPMorgan and 49 per cent at Citi in last year’s fourth quarter.
The banks’ other businesses did well, but lower interest rates were a hurdle. JPMorgan Chase’s net interest revenue fell 2 per cent while the same metric at Citigroup fell one per cent.