sunny.png
Sunday January 19th, 2020 4:54PM

Banks post big profits, but lower interest rates are a worry

By The Associated Press
Related Articles
  Contact Editor

NEW YORK (AP) — 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 tons 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%, a stable U.S. 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 U.S. helped alleviate recession fears. Revenue from trading jumped 55% at JPMorgan and 49% 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% while the same metric at Citigroup fell 1%.

Wells Fargo also reported quarterly earnings Tuesday. Its results are messy due the bank's seemingly unending legal troubles and it being restrained from growing its business by the Federal Reserve. It took a $1.5 billion charge last quarter to cover its legal costs and is on its fourth CEO in less than four years. Charles Scharf, who previously ran Visa Inc. and BNY Mellon, said Wells Fargo still had not “effectively addressed” the cultural problems that caused the bank's cultural problems in the first place.

Even setting aside the legal issues, things do not look good for Wells Fargo, which is more susceptible to fluctuations in interest rates because of its large consumer banking business. It saw interest revenue fall 8%.

Bank executives say that the U.S. economy is healthy and growing steadily, and the American consumer is spending and borrowing with confidence, which should keep bank profits healthy in 2020.

“ Wages are up, cash flow is up, investments are up. We don't see anything that's concerning,” said JPMorgan Chief Executive Jamie Dimon in a conference call with reporters.

The biggest challenge could be lower interest rates, as the Fed has signaled it intends to keep rates steady for the foreseeable future. There's also future worries about the massive amount of debt borrowers have taken on, and whether that can withstand a future economic downturn.

“Lower interest rates make it a lot harder to grow profits from here,” said Kyle Sanders, an analyst with Edward Jones who covers Wells Fargo. “A lot of things have to go the right way to keep this earnings momentum for the banks."

But other analysts say that if banks continue to cut costs to make up for falling interest rate revenue, and the U.S. economy keeps growing steadily, banks could have another highly profitable year in 2020.

The rest of the Wall Street banks — Goldman Sachs, Morgan Stanley and Bank of America — will report later this week as will a host of regional banks such as PNC, U.S. Bank, and Truist, the new bank created by the merger of BB&T and SunTrust.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Corporate News, AP Business - Economy, AP Business - Industries, AP Business - Financial Services
© Copyright 2020 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Banks post big profits, but lower interest rates are a worry
So far, it appears 2019 was another record year for Wall Street
1:50PM ( 7 minutes ago )
NSA discovers security flaw in Windows, Microsoft issues fix
The National Security Agency has discovered a major security flaw in Microsoft's Windows operating system
1:48PM ( 10 minutes ago )
EU pressures Iran on atom deal in last-ditch bid to save it
Britain, France and Germany are increasing pressure on Iran to stop violating its landmark nuclear deal
1:45PM ( 13 minutes ago )
Associated Press (AP)
US drinking more now than just before Prohibition
Americans are drinking more now than when Prohibition was enacted
12:58PM ( 1 hour ago )
Bill to increase Georgia tax collections could move quickly
Georgia lawmakers are nearing a deal to tighten sales tax collections by online marketplaces such as eBay and Etsy
12:44PM ( 1 hour ago )
Man accused of killing hotel worker in Anguilla sues resort
A Connecticut man charged with killing a hotel worker he says attacked his family on the Caribbean island of Anguilla has filed a negligence lawsuit against the resort company that operates the hotel
12:36PM ( 1 hour ago )
AP Business
Russians hacked company key to Ukraine scandal: researchers
A U.S. cybersecurity company says Russian military agents successfully hacked the Ukrainian gas company at the center of the scandal that led to President Donald Trump's impeachment
10:51AM ( 3 hours ago )
Stocks open mostly lower on Wall Street; Wells Fargo sinks
Stocks are off to a mostly lower start on Wall Street as losses for some banks and health care companies offset gains elsewhere in the market
9:41AM ( 4 hours ago )
AP Business - Corporate News
Davos forum: Trump to attend, but Iranian official cancels
Iran's top diplomat will be sitting out the elite World Economic Forum next week in Davos, Switzerland, where President Donald Trump and other key U.S. leaders are set to be high-profile attendees
9:58AM ( 3 hours ago )
EU rebukes Iran over nuclear violations, sanctions possible
Britain, France and Germany have ramped up pressure on Iran for repeatedly violating a landmark nuclear pact
9:54AM ( 4 hours ago )
Key moments in the unraveling of Iran's nuclear deal
European nations have triggered a dispute resolution mechanism in the Iran nuclear deal
9:31AM ( 4 hours ago )
AP Business - Economy
World's largest asset manager shifts focus to climate change
BlackRock, the world's largest asset manager, will make climate change central to its investment decisions
10:10AM ( 3 hours ago )
Federal government blasts PG&E's deal with fire victims
Tensions between the U.S. government and Pacific Gas & Electric are boiling over as they battle over whether a taxpayer-funded agency should be allowed to stake a claim on a $13.5 billion settlement covering most of the losses from catastrophic wildfires blamed on the bankrupt utility
3:00AM ( 10 hours ago )
High anxiety: Proposed US hemp rules worry industry
Hemp was ushered in as a federally legal agricultural crop under the groundbreaking 2018 Farm Bill
7:22PM ( 18 hours ago )
AP Business - Industries
Stock indexes give up early gains and close broadly lower
Stocks are closing broadly lower on Wall Street after giving up early gains
4:08PM ( 3 days ago )
2014 Fed conundrum: How to alert markets rates were going up
In her first year as Federal Reserve chair, Janet Yellen presided over a divided policy panel
4:06PM ( 3 days ago )
AP Business - Financial Services
NSA discovers security flaw in Windows, Microsoft issues fix
The National Security Agency has discovered a major security flaw in Microsoft's Windows operating system
1:48PM ( 10 minutes ago )
EU pressures Iran on atom deal in last-ditch bid to save it
Britain, France and Germany are increasing pressure on Iran to stop violating its landmark nuclear deal
1:45PM ( 13 minutes ago )
US--Microsoft-NSA-Security Flaw
The National Security Agency has discovered a major security flaw in Microsoft's Windows operating system
1:41PM ( 17 minutes ago )
Rising energy costs lift US consumer prices 0.2% in December
Rising gasoline prices lift US consumer inflation 0.2% in December; workers’ earnings don’t keep up
1:29PM ( 29 minutes ago )
California housing crisis: Oakland moms evicted by deputies
Homeless women ordered by a judge last week to leave a vacant house they occupied illegally in Oakland for two months have been evicted by sheriff's deputies
1:16PM ( 41 minutes ago )