"Business Conditions Rebound Gains Momentum"
Geopolitical Tensions, Interest Rates, and US Election Risks Persist
Major U.S. investment banks posted better-than-expected strong earnings for the first quarter.
According to the Wall Street Journal (WSJ) on the 16th (local time), the total revenue of six investment banks?JP Morgan, Bank of America (BoA), Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley?increased by 4% to $139.07 billion (approximately 193.32 trillion KRW), while net income decreased by 3% from last year to $35.63 billion (approximately 49.53 trillion KRW). The results were evaluated as exceeding or meeting Wall Street's expectations.
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Wells Fargo (30%), Goldman Sachs (28%), Morgan Stanley (14%), and JP Morgan (6%) saw increases in net income, whereas Citigroup and BoA experienced declines. Citigroup's net income fell 27% and revenue dropped 2% due to costs related to mass layoffs and deposit insurance expenses. BoA's first-quarter net income decreased by 18% year-over-year due to a decline in net interest income.
They particularly achieved their best performance in the investment banking (IB) sector since the Federal Reserve (Fed) began raising interest rates in 2022. BoA's investment banking fees increased by 35% compared to the previous year. Goldman Sachs and Citigroup each saw a 32% increase. JP Morgan and Morgan Stanley reported increases of 21% and 16%, respectively.
Jane Fraser, CEO of Citigroup, stated on a conference call, "The banking sector rebound gained momentum this quarter," adding, "With improving market conditions, we led investment-grade debt issuance at nearly record levels."
With the economy showing strength, consumers and businesses expanded spending and borrowing, and asset management division revenues also increased. Alastair Bostwick, CFO of BoA, said, "The economy remains resilient, much of which is related to consumers."
On the other hand, trading revenues decreased for JP Morgan and Citigroup, remained similar to last year for Morgan Stanley and BoA, while Goldman Sachs saw a 24% increase during the same period.
Although bank executives have regained confidence, WSJ analyzed that uncertainty due to geopolitical tensions still leaves them vulnerable. Risks such as interest rate uncertainty and the U.S. presidential election also exist.
In particular, if interest rates remain high at current levels, there is a high likelihood of long-term difficulties. JP Morgan, Citigroup, and Wells Fargo reported that net interest income declined compared to the fourth quarter of last year. Additionally, several banks including BoA hold unrealized losses worth hundreds of billions of dollars on bonds purchased before interest rates rose, causing concern among investors.
Ted Pick, CEO of Morgan Stanley, said, "We have strong order backlogs and momentum across all company divisions," but added, "The pipeline is healthy, yet economic and geopolitical uncertainties remain."
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