Market news and an update on three US banks.

Market News

US equity markets declined during Friday’s session – S&P 500 (-0.5%); Nasdaq (-1.2%) – and the trend continued in Asia this morning: Nikkei 225 (-2.0%); Hang Seng (-1.0%); Shanghai Composite (-0.6%). However, despite rising Middle East tensions, S&P futures are currently pointing to a 0.2% bounce at the open this afternoon. The FTSE 100 is currently up a touch at 7,600.

The 10-year Treasury yield rose slightly to 4.66%. Gold jumped 3% on Friday as the conflict lifted safe-haven demand. This morning the price has drifted back to $1,910 an ounce. Brent Crude held around $90 a barrel, consolidating Friday’s 5% gain as traders continued to monitor global oil supply.

The yuan rose after the PBOC made the biggest medium-term liquidity injection since 2020, while keeping its benchmark MLF rate at 2.5%. Before today’s announcement, ex-SAFE economist Miao Yanliang called for a cut in China’s “simply too high” rates.

The ECB won’t lower interest rates until September 2024, according to a poll of economists — suggesting the message from policymakers that cuts won’t come soon is sinking in. The latest Bloomberg survey is a departure from the previous round, when respondents still saw borrowing costs being lowered in March.

In the UK, landlords paid 40% more mortgage interest in August than a year earlier, according to Hamptons International. The average price of a property put up for sale increased by just 0.5% in October to £368,231, Rightmove reported. And almost a third of British consumers plan to reduce Christmas spending this year, PwC said. Sterling trades at $1.2167 and €1.1549.

Corporate results this week include from Johnson & Johnson, Goldman Sachs, United Airlines, Omnicom, Tesla, P&G, A&7T, Alcoa, Volvo, Netflix, American Express, IHG, and Essilor Luxottica.

Source: Bloomberg

Company News

On Friday afternoon, the US banking sector results season got underway, with Q3 figures from three of the industry giants: JPMorgan Chase, Citigroup, and Wells Fargo. The banks reported profit growth ahead of market expectations driven by higher interest rates on loans. Two of the three increased their full-year guidance for net interest income – the difference between what they pay on deposits and what they charge for loans. However, the banks also warned of a slowdown in economic growth as customers depleted their savings. In response, share prices rose across the sector against a weak overall stock market backdrop.

The competitive pressure to raise deposit rates was slower than expected as the largest banks have benefitted from their perceived safety. However, some deposits have been lost where customers moved money into higher-yielding money market funds. The banks admitted they will eventually have to provide higher deposit rates which will cut into profitability.

At JPMorgan Chase, revenue grew 21% to $40.7bn, versus $39.6bn expected. Average deposits fell by 4%, while average loans were up 17% to $1.3trn. Net interest income (NII) grew 30% to $22.9bn, predominantly driven by higher interest rates and acquisition of First Republic Bank. Excluding First Republic, NII was up 21%. Non-interest revenue grew by 12% to $17.8bn.

Expenses rose 13% to $21.8bn, while the provision for credit losses fell 10% to $1.4bn. EPS grew 39% to $4.33, ahead of the $3.96 expected by the market. The Common Equity Tier 1 (CET1) ratio (a measure of financial strength) rose from 13.8% to 14.3%. The group bought back $2.0bn of its shares and raised its dividend by 5% to 105c. For the full year, the group now expects net interest income of around $88.5bn.

At Citigroup, revenue was up 9% to $20.1bn driven by growth in Services, Cards, and Markets. Average deposits fell by 1% to $1,315bn, while average loans were up 1% to $662bn. Net interest income rose by 10% to $13.8bn, while non-interest revenue grew by 6% to $6.3bn.

Expenses rose 6% to $13.5bn due to rising costs and investments in control systems. The expenses included severance payments for employees who were laid off during the sale of its international businesses. The provision for credit losses grew from $16.3bn to $17.6bn. EPS was flat at $1.52, ahead of the $1.21 expected by the market.

The Common Equity Tier 1 (CET1) ratio rose from 12.3% to 13.5%, 120 basis points above the regulatory minimum and buffers. The group returned $1.5bn in the form of dividends and share repurchases. The group raised its full-year guidance for net interest income from ‘around $46bn+’ to ‘$47.5bn+’.

At Wells Fargo, revenue rose by 7% to $20.9bn, versus the market forecast of $20.1bn. Average deposits fell by 5% to $1.3trn, while average loans were little changed at $943bn. Net interest income grew by 8.1% to $13.1bn primarily due to the impact of higher interest rates, partially offset by lower deposit balances. Non-interest income was up by 4% to $7.8bn. The provision for credit losses grew from $784m to $1,197m. EPS grew from 86c to $1.48, ahead of the $1.24 expected by the market.

The Common Equity Tier 1 (CET1) ratio rose from 10.3% to 11.0%, well above the regulatory minimum and buffers of 9.2%. The group bought back $1.5bn of its shares and raised its dividend by 14% to 35c. The group also raised its full-year guidance for growth in net interest income from ‘around 14%’ to ‘around 16%’.

Source: Bloomberg