US banks earn significantly less
New York JP Morgan Chase’s profits fell 17 percent in the past quarter as a result of the shrinking investment banking business. The largest US bank achieved a surplus of 9.7 billion US dollars from July to September after 11.9 billion a year earlier, as the institute announced on Friday.
Financial experts assumed even worse numbers and expected a 24 percent drop in profits. The absence of M&A deals at JP Morgan’s investment banking business saw profits shrink 43 percent on sales of $1.7 billion.
The US market leader also posted $808 million in provisions for impending loan defaults. For comparison, the bank released $2.1 billion for pandemic-related loan loss provisions a year earlier. Headwind for the banking business is the “stubbornly high inflation”, which leads to higher interest rates worldwide, explained CEO Jamie Dimon when the business figures were presented. Nevertheless, US companies are healthy, there are many jobs on the labor market and consumers have solid finances.
Scandal costs Wells Fargo a third of profits
The scandal surrounding fictitious customer accounts and increased provisions for impending loan defaults caused the profit of the major US bank Wells Fargo to shrink by around a third in the third quarter. In the period from July to September, the surplus fell by 31 percent to $ 3.53 billion compared to the same period last year, the fourth largest bank in the USA said on Friday.
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“Our solid business performance in the third quarter was severely impacted by operating losses of $2 billion due to court cases, customer dispute resolution and regulatory issues from the past,” said CEO Charlie Scharf of the quarterly results.
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In the past quarter, the money house made provisions for impending loan defaults with a volume of 784 million dollars. A year ago, Wells Fargo released risk provisions totaling $1.4 billion because of the economic upswing at the time. “We expect a steady increase in payment defaults and ultimately credit losses, only the timing remains unclear,” said Scharf.
Other top US banks, including Citigroup and Morgan Stanley, also release their numbers on Friday. Investment bank Goldman Sachs and Bank of America plan to present their annual reports next week.
Morgan Stanley weaker than expected
The ongoing slump in mergers and acquisitions is eating away at profits at US investment bank Morgan Stanley. The surplus fell in the third quarter to $ 2.49 billion after $ 3.58 billion a year ago, as the money house announced on Friday. Earnings per share were $1.47 on the books, up from $1.98 a year earlier. However, analysts had expected $1.49.
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Company boss James Gorman said he was not dissatisfied with the figures for the months of July to September. “The company’s performance has been robust and balanced in an uncertain and challenging environment,” he said.
Net income fell 12 percent to $13 billion in the third quarter. The global slump in mergers and acquisitions is now in its third straight quarter. In the US, volumes plummeted nearly 63 percent in the third quarter. The rising cost of borrowing has forced many companies to postpone large acquisitions. In addition, the turbulence on the financial markets triggered by the Ukraine war and the rapidly rising interest rates weighed on investor sentiment. Companies therefore put IPOs on the back burner for the time being.
Less profit despite increasing yields
The US financial group Citigroup also made significantly less profit in the third quarter despite higher income. The big bank is arming itself with increased risk provisions for an economic downturn.
The bottom line is that Citi earned $3.5 billion ($3.6 billion), about a quarter less than a year ago, according to its own statement on Friday. Experts had expected an even sharper decline. Nevertheless, investors reacted cautiously and initially let the share fall slightly before the market.
The earnings of the money house increased by six percent to 18.5 billion dollars. However, Citi set aside $370 million as collateral for impaired loans, which depressed net income. A year ago, the bank had liquidated more than $1 billion in reserves. In addition, Citi had to cope with significantly higher costs and cutbacks in investment banking, as many companies are reluctant to go public and issue securities in a market environment characterized by inflation and recession concerns.
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