High interest rate benefits are dissipating, Wall Street big banks' net interest income "warning" JP Morgan plunges 6% | Financial Report Insights

JPMorgan Chase, Citigroup, Wells Fargo, and BlackRock released their financial reports before the market opened on Friday, with mixed performances from the Wall Street financial giants. JPMorgan Chase's net interest income guidance fell short of expectations, Wells Fargo's net interest income also fell short of expectations, indicating that the benefits brought by high interest rates to banks may be diminishing. Citigroup's FICC sales and trading revenue in the first quarter exceeded expectations, while BlackRock's net fund inflows fell short of expectations. On Friday, shares of major banks generally fell.

JPMorgan Chase: Net Interest Income Ends Record High Streak of Seven Consecutive Quarters

JPMorgan Chase's full-year net interest income outlook is slightly below analyst expectations, and the bank raised its full-year expense guidance, leading to a decline in stock price on Friday. Analysts believe this indicates that the benefits brought by high interest rates to the bank may be weakening, while facing more pressure to pay depositors.

JPMorgan Chase's quarterly report showed adjusted revenue of $42.55 billion in the first quarter, higher than the market's estimated $41.64 billion. Net interest income in the first quarter was $23.1 billion, an 11% year-on-year increase. However, JPMorgan Chase still expects full-year net interest income to be around $90 billion, without raising the full-year net interest income expectations as previously expected by the market, excluding the net interest income guidance for the market business raised to around $89 billion. At the same time, the bank forecasts full-year adjusted expenses to be around $91 billion, higher than previous expectations.

In addition, JPMorgan Chase's loans in the first quarter were $1.31 trillion, below the market's estimated $1.33 trillion; the first quarter return on equity was 17%, higher than the market's estimated 15.9%. Investment banking revenue in the first quarter was $1.99 billion, higher than analyst expectations. Furthermore, costs in the first quarter increased by 13%, mainly due to higher compensation and an additional $725 million in Federal Deposit Insurance Corporation (FDIC) assessment fees paid for the acquisition of two failed banks last year.

As a result, JPMorgan Chase's net interest income ended a record high streak of seven consecutive quarters. JPMorgan Chase CEO Jamie Dimon stated that the narrowing gap between interest earned on loans and interest paid on deposits, as well as a decrease in deposit balances in consumer business, were reasons for the decline in net interest income.

Dimon said, "Looking ahead, we expect net interest income and credit costs to continue to normalize."

Due to the lower-than-expected net interest income, JPMorgan Chase fell sharply by 5.87% to $183.96 during Friday's trading.

Some analysts expressed disappointment with JPMorgan Chase's loan income and performance guidance. Analysts stated that they had expected net interest income to maintain its previous trend and raise the net interest income guidance, "but as Jamie has always told us, the party of beating expectations and raising guidance will eventually come to an end." Damon has been warning for months that inflation may be more stubborn than the market predicts, and wrote in the annual shareholder letter on Monday that JPMorgan Chase is prepared to handle rates ranging from 2% to 8% "or even higher." He said on Friday that despite some favorable economic indicators, many uncertainties such as war, geopolitical tensions, and inflation pressures still exist.

He said, "We don't know how these factors will develop, but we must prepare the company to deal with various possible scenarios to ensure that we can always serve our customers."

Wells Fargo: Net interest income to decline by 7%-9% this year

Like JPMorgan Chase, Wells Fargo's net interest income in the first quarter fell short of expectations.

According to the financial report, Wells Fargo's first-quarter revenue was $20.86 billion, higher than the market estimate of $20.21 billion. Earnings per share were $1.20; corporate and investment banking revenue was $4.98 billion. Net interest income in the first quarter was $12.2 billion, an 8.3% year-on-year decrease, below analysts' expectations of $12.3 billion.

Wells Fargo attributed the decline in first-quarter net interest income to the impact of higher rates on financing costs, including customers moving funds to higher-yielding accounts and a decrease in loan balances. The company still expects net interest income to decline by 7% to 9% this year from $52.4 billion in 2023, reiterating the forecast given in January.

Total deposits in the first quarter increased slightly compared to the same period last year, driven by a surge in interest-bearing deposits. Non-interest-bearing funds decreased by 18% during this period.

Additionally, Wells Fargo reported $1.15 billion in net charge-offs, including $187 million related to commercial real estate. Chief Financial Officer Mike Santomassimo stated in February that the company's commercial real estate investment portfolio "looks pretty good in most cases," but warned that issues in this area will take time to resolve.

Furthermore, Wells Fargo's first-quarter expenses were $14.3 billion, worse than analysts' expectations, mainly due to an additional $284 million paid to the Federal Deposit Insurance Corporation for special assessment fees related to last year's regional bank failures.

Wells Fargo fell 0.28% in midday trading on Friday, closing at $56.53.

Citigroup: Increase in corporate financing and consumer card loans

However, Citigroup did not experience the same situation as JPMorgan Chase and Wells Fargo. The financial report shows that first-quarter revenue, profit, and net interest income all exceeded analysts' expectations. Analysts believe that increased corporate financing and consumer card loans in a high-interest rate environment have boosted Citigroup's earnings.

According to the financial report, Citigroup's first-quarter revenue was $21.1 billion, higher than the market estimate of $20.38 billion, a 3% year-on-year increase; net interest income was $13.51 billion, a 1.2% year-on-year increase, surpassing analysts' expectations; net profit was $3.4 billion, earnings per share were $1.58, higher than analysts' expected $1.23 per share In the first quarter, FICC sales and trading revenue reached $4.15 billion, higher than the market's expected $4.12 billion; stock sales and trading revenue reached $1.23 billion, higher than the market's expected $1.11 billion; investment banking revenue was $0.903 billion, higher than the market's expected $0.7769 billion; credit costs totaled $2.37 billion, lower than the market's expected $2.64 billion. Meanwhile, Citigroup maintained its full-year revenue and expense guidance.

Media reports indicate that with market expectations of a longer wait for the Fed rate cut, Citigroup's key business lines have seen enhanced earnings. More companies are choosing Citibank to help issue bonds rather than waiting. At the same time, consumer spending on credit cards has increased, leading to higher card debt.

Investors have been closely monitoring Citigroup's earnings as CEO Jane Fraser implements a company restructuring plan involving cutting 20,000 jobs. Citigroup stated that by the end of the first quarter, 7,000 jobs had already been cut. Citigroup CFO Mark Mason said during the earnings conference call, "We are still working to eliminate stranded costs. Over the next few years, we also expect to improve efficiency."

Citigroup's business restructuring will result in "a clearer, simpler management structure that fully aligns with and advances our strategy," Fraser said in a statement. "We have retired multiple legacy platforms, streamlined end-to-end processes, and strengthened our risk and control environment, making good progress."

Due to the positive performance, Citigroup's stock opened up 2.7% on Thursday but later turned negative by 2.31%, closing at $59.31.

Analysis suggests that companies avoid financing when the Fed rapidly raises rates, but once they have a clearer view of the future, they return to the market, raise funds, and strengthen their financing. With investors cooling on expectations of a Fed rate cut this year, Citibank's business may further benefit.

In the capital markets, Citibank's capital markets division exceeded expectations in debt underwriting revenue, but merger advisory activities remained subdued.

BlackRock: Net fund inflows below expectations

BlackRock, the world's largest asset management company, reported first-quarter results that exceeded expectations, with total assets reaching a record $10.5 trillion, but net fund inflows fell short of expectations.

According to the financial report, BlackRock's first-quarter revenue was $4.73 billion, higher than the market's expected $4.68 billion, a year-on-year increase of 11%. Adjusted earnings per share were $9.81, higher than the market's expected $9.34. The first quarter saw net fund inflows of $76 billion, below analysts' expectations of $85 billion With assets under management totaling $10.47 trillion, higher than the market's estimated $10.43 trillion.

According to the financial report, fund inflows in the first quarter included $67 billion flowing into ETFs and $42 billion flowing into fixed income funds. Data shows that clients also withdrew $19 billion from BlackRock's independent cash management business and money market funds, while investors have injected $14 billion into the company's Bitcoin ETF since mid-January.

The company issued $3 billion in debt to fund its planned acquisition of Global Infrastructure Partners. BlackRock stated that it repurchased $375 million worth of shares this quarter and increased its dividend by 2% to $5.10 per share.

BlackRock's stock price fell 1.9% to $769.91 during Friday's trading session.