Sun, Apr 15, 2018 - Page 16 News List

Large US banks eye trade war threat as profits rise

ON A ROLL:Executives from JPMorgan, Citigroup and Wells Fargo said that sentiment is strong amid positive conditions in the world’s major economies


Large US banks reported increased first-quarter earnings on Friday on higher interest rates and lower taxes, but cautioned that a trade war could stymie activity.

JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co all reported better-than-expected profits, although Wells Fargo said the results do not include costs connected to the final resolution on a proposed US$1 billion US regulatory fine that is being negotiated.

Bank executives said business sentiment remained fairly strong amid positive conditions in major economies. However, they acknowledged that the threat of a global trade war had moved into business conversation, even if the effects had so far been minimal.

“There is a lot of noise out there and I think that’s having a somewhat dampening effect,” Citigroup chief financial officer John Gerspach said. “It may delay things for a little bit, but I don’t think it’s having a significant impact.”

“Obviously it is part of discussions,” JPMorgan chief financial officer Marianne Lake said. “At this point, it’s not having a material effect.”

JPMorgan said net income jumped in the first quarter to US$8.7 billion, 35.1 percent higher than the same period a year ago. Revenues increased 10.3 percent to US$28.5 billion.

The biggest US bank by assets saw earnings increases in all its major divisions due in large part to higher interest rates, which enabled JPMorgan to increase its profits from the spread between its deposits and loans.

At Citigroup, first-quarter earnings rose to US$4.6 billion, up 13 percent from the same period a year ago, while revenues were up 2.8 percent at US$18.9 billion. The company pointed to broad growth in global consumer banking across regions.

Wells Fargo reported a 5.7 percent increase in first-quarter results to US$5.5 billion. However, revenues fell 1.4 percent to US$21.9 billion at the troubled institution.

Regulators from the US Consumer Financial Protection Bureau and the US Office of the Comptroller of the Currency have proposed US$1 billion in penalties to resolve investigations into its automobile insurance and mortgage practices. Wells Fargo said the results did not include an estimate because “we are unable to predict final resolution” of the matter.

“I’m confident that our outstanding team will continue to transform Wells Fargo into a better, stronger company,” chief executive officer Tim Sloan said. “However, we recognize that it will take time to put all of our challenges behind us.”

Results from all three banks were boosted by lower taxes, although bank executives expect a fuller payout from the overhaul with time.

JPMorgan’s commercial banking business experienced flat lending despite positive corporate sentiment.

Lending should pick up as more businesses take action following US tax reform, Lake said.

“As much as we’re all eager, we have to recognize that tax reform is still in the early stages, but optimism continues to be very high,” she said.

Citigroup, which reported higher corporate lending, also expects more of a pickup in activity later in the year due to the tax bill.

“The real benefits of tax reform are yet to be felt in the overall economy,” Gerspach said. “While there’s a lot of planning going on, I don’t think you’re going to see a lot of action until the latter part of this quarter and certainly in the second half of the year.”

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