The big US banks often set the tone for the financial industry and are in a league of their own in terms of profits.

This was shown again on Friday when the three big banks J.P. Morgan, Bank of America and Citigroup were the first listed US companies to present their figures for the fourth quarter of 2022 and thus also for the full year 2022.

Two of them earned more in the fourth quarter alone than Deutsche Bank AG, which is now in good shape again, is expected to earn in 2022 as a whole.

Hanno Mussler

Editor in Business.

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The largest US bank JP Morgan increased its annual result to $37.7 (2021: $46.5 billion) thanks to a quarterly net profit of $11 billion (10.2 billion euros).

Bank of America earned $7.1 billion after taxes in the fourth quarter, lifting its annual profit to $27.5 billion (2021: $32 billion).

Citigroup, the third in the group, achieved a quarterly profit of 2.5 billion dollars and thus increased its annual profit to 14.8 (2021: 21.9) billion dollars.

Weak investment banking

The decline in profits year-on-year from 32 percent (Citigroup) to 14 percent (Bank of America) had already become apparent in the past few months.

Banks with a strong investment banking business in particular suffered from the low need for advice from corporate customers, who rarely went public or bought a competitor in 2022.

Also, comparing the fourth quarter of 2022 to the fourth quarter of 2021, investment banking revenue fell 52 percent at market leader JP Morgan and 54 percent at Bank of America (Bofa).

As a result, bonuses on Wall Street, which are traditionally paid out to investment bankers in February for the past year, are likely to fall by around 40 percent.

New problem child interest business

More important for the US stock market on Friday than the continuation of the weak trend in investment banking, however, was that the US banks - above all JP Morgan - dampened expectations of net interest income in 2023.

"This is a warning shot for the entire financial industry," wrote the analysts at the Swiss bank UBS about the $73 billion in interest income named by the board of JP Morgan on Friday as a new target for 2023.

This is disappointing, given that JP Morgan achieved net interest income of $20.3 billion in the fourth quarter alone.

The analysts at UBS also point out that on average all analysts have so far credited JP Morgan with net interest income of $75.5 billion for 2023, the more optimistic even $77 billion.

The setback potential for the institute's share price, which has recovered in the past six months by 23 percent to around 140 dollars, is correspondingly large.

On Friday, however, the share came under pressure at the start of trading, but later turned positive

.

Net interest income is the most important source of income for banks involved in retail and corporate lending.

The money parked with banks (deposits) usually pays less interest than loans, so the banks make a margin here.

The fact that US banks are now having to lower the analysts' expectations of this interest rate margin is interesting for the entire banking industry, as this business only became really interesting again in 2022.