Eighteen months after the regional banking crisis—which many analysts claimed foreshadowed larger issues for the country's banks and the economy—America’s banks appear to be in robust health, based on the first round of September quarter earnings reports from major players like JPMorgan Chase and Wells Fargo.
Capital levels are strong, lending is solid, trading income is up with the Wall Street boom, and there are no signs of concern.
JPMorgan Chase, the largest of America’s banks, reported higher-than-expected profits and raised its annual earnings forecast, causing its shares to jump by as much as 5%.
Wells Fargo shares surged 6% after it announced earnings that exceeded analysts’ forecasts, thanks to potential loan loss provisions that were smaller than expected.
Shares of Bank of America rose 5% ahead of its quarterly release on Tuesday, with investors largely overlooking further selling of its shares by legendary investor Warren Buffett and his Berkshire Hathaway company.
Goldman Sachs, Morgan Stanley, and Citigroup are also set to release their quarterly figures this week.
Although Wells Fargo forecast a 9% drop in net interest income for the year, the bank predicted the decline would stabilize as the Fed revealed plans for more rate cuts.
BlackRock’s shares gained about 3% after the world’s largest money manager reported record assets under management for the third consecutive quarter.
These reports prompted other financial stocks to rise, with the S&P Financials index climbing to a record high and the S&P Banks index jumping 4.5% to its highest level since February 2022.
US bank shares are now above the levels they reached before the issues and subsequent failure of Silicon Valley Bank (SVB) in March 2023, which led to a significant sell-off amid fears of contagion.
JPMorgan posted revenue of $42.65 billion, well above the $39.87 billion reported a year ago and the $40.85 billion consensus estimate from analysts. Reported net interest income rose to $23.41 billion from $22.73 billion, and net profit was $12.9 billion, down from $13.15 billion a year earlier but higher than analysts' forecasts of $11.81 billion.
Wells Fargo reported net income of $5.11 billion for the quarter, down from $5.77 billion last year but nearly half a billion dollars better than analysts had expected. Revenue also decreased year-over-year to $20.37 billion but came in slightly above estimates, while net interest income fell more than analysts anticipated, down to $11.69 billion.
Despite this, investors, analysts, and ratings groups remained optimistic. Moody's analyst Megan Fox stated that Wells Fargo's third-quarter results were "credit neutral," reflecting improved revenue diversification, as continued lower net interest income was partially offset by fee revenue growth.
Analyst Peter Nerby from Moody's noted that JPMorgan's third-quarter results highlighted the credit benefits of the bank's diversification, as profit growth in the commercial and investment banking sectors offset some weaknesses in consumer and community banking.
He pointed out that the bank delivered $20.8 billion in "pre-provision profitability" and a common equity Tier 1 ratio—a measure of solvency—of 15.3%, underscoring the bank's "proven ability to generate capital that protects its bondholders from economic and geopolitical uncertainty."
