The country’s largest banks escaped the crisis that just weeks ago brought down two midsize U.S. lenders, unnerving regulators and depositors. If anything, the tumult helped those giants rake in bumper profits.
JPMorgan Chase, Citigroup and Wells Fargo on Friday unveiled banner earnings for the first three months of the year, making billions more than they and analysts had projected. Even as the banks warned that the economy was on tenterhooks and that credit could become scarce, they said they would keep making loans and expected stronger profits if interest rates continued to rise.
The dynamic reflects that, in general, rising interest rates — which the Federal Reserve has been using to combat high inflation — allow banks to charge borrowers more for loans than what they pay depositors. The robust earnings reports Friday also signaled that the crisis caused by the collapse of Silicon Valley Bank and Signature Bank last month has strengthened the biggest U.S. banks.
Most smaller, regional banks, some of which face perilous futures, will not report results until later this month. The good times for their largest rivals, however, are an ominous reminder that many bank customers have suddenly developed a strong preference for larger institutions that they believe to be safer and more stable.
JPMorgan, the nation’s largest bank, reported strong revenue in most parts of its businesses, helping it post a profit of $12.6 billion in the first quarter, 52 percent more than a year earlier.
The bank said that its loans had been steady in the quarter and that customer deposits had risen slightly from the last three months of 2022, with inflows picking up in particular after smaller depositors pulled their money out of smaller banks.
JPMorgan’s chief executive, Jamie Dimon, who has taken a leading role in bailing out smaller lenders, said that the banking crisis was distinct, but that financial conditions were likely to tighten as lenders, including his own company, became more conservative.
“We are going to eventually have a recession, but that may be pushed off a bit,” he said.
JPMorgan set aside roughly $2.3 billion to protect against borrowers’ falling behind on their loans. That was up from $1.5 billion in the same quarter last year, largely because of a somewhat worse economic outlook, the bank said.
Mr. Dimon’s view was underscored by economic data released on Friday: Retail sales fell 1 percent in March from the month before, the Commerce Department said, a weaker showing than analysts had expected.
Staff at the Federal Reserve project that general banking turmoil will spur a “mild” recession later this year.
Still, executives mostly expressed optimism on Friday about their banks’ prospects in conference calls to discuss their quarterly results.
Citigroup, the country’s third-largest lender, reported a profit of $4.6 billion in the first quarter, up 7 percent from a year earlier and well ahead of the expectations of Wall Street analysts. Revenue jumped 12 percent. As for the regional bank tumult, Jane Fraser, Citigroup’s chief executive, said she did not see those issues as “pervasive throughout the broader banking industry.”
The bank’s loan book was roughly unchanged, and deposits fell 3 percent from the previous quarter, though credit card lending was up 7 percent from a year earlier. UBS analysts said Citigroup, which has been slimming its international operations, still had “more wood to chop.”
At Wells Fargo, “the majority of our businesses remain strong,” Charles Scharf, its chief executive, told analysts. Rising interest rates lifted the bank’s earnings as its loan portfolio grew, led by gains in personal lending and higher credit card balances.
There was little sign that nervous depositors were fleeing to the safety of the lender, the nation’s fourth-largest bank. Deposits at Wells Fargo dropped $24 billion, or 2 percent, from the previous quarter. Loans were little changed.
Delinquencies and write-offs of bad loans edged up, and the bank increased its reserve for future losses, citing commercial real estate — especially loans backed by office buildings — as well as credit cards and auto loans as areas of potential weakness. Consumer spending began to soften late in the quarter, Mr. Scharf said.
Analysts are closely watching for signs of tightening lending that could lead to a credit crunch. Mr. Scharf said that Wells Fargo was “taking incremental actions to tighten credit on higher-risk segments,” but that he did not anticipate a broad pullback.
Ms. Fraser of Citigroup said she was worried that regulatory changes in the wake of the smaller banks’ turmoil, which are likely to include demands that banks keep more cash on hand, “would exacerbate any credit tightening.”
PNC Financial, the country’s sixth-largest bank, said on Friday that the industry volatility had ended up playing to its strengths. Its deposits grew slightly last quarter, and profit rose to $1.7 billion, up more than 18 percent from a year earlier.
Although it has been swept up in the turmoil surrounding midsize banks, PNC, a so-called super regional lender, is bigger and more diversified than most regional financial institutions. PNC played a part in last month’s rescue plan for the ailing First Republic Bank, depositing $1 billion into the bank as part of a $30 billion deal engineered by Mr. Dimon.
Investors mostly welcomed the earning reports by the big banks, their first look inside the books of the industry bellwethers since the failure of Silicon Valley and Signature Bank. JPMorgan’s stock was up about 7 percent around 1 p.m.
“The banking system is very sound — it’s stable,” Lael Brainard, director of President Biden’s National Economic Council, said this week at an event in Washington.
But some smaller banks could still struggle as customers rethink where they keep their money.
Another larger financial institution that reported its first-quarter earnings, the investment management giant BlackRock, said it had been on the receiving end of $40 billion from clients looking to better manage their cash.
“We expect to shift from deposits to money market funds to be a longer-term trend,” Laurence D. Fink, the company’s chief executive, said during a conference call with analysts, “and are actively working with clients to help them diversify and enhance the yield they’re earning on their cash.”
Joe Rennison contributed reporting.
