The recent failures of Silicon Valley Bank and Signature Bank, two midsize banks in the US, have caused concerns among investors about the state of the banking industry. However, the nation’s largest banks, including JPMorgan Chase & Co., Wells Fargo, and Citigroup, have posted strong profits in the first quarter of the year, despite the turmoil. JPMorgan Chase & Co. saw a 52% jump in profits, while Wells Fargo reported earnings of $5 billion, beating analysts’ projections. Although Citigroup’s bottom line was impacted by one-time losses on some investments, it still exceeded analysts’ estimates on revenue.
Investors have been worried about banks since they have accumulated billions of dollars in paper losses on bonds and other securities bought when interest rates were lower. However, the size of the largest banks’ massive balance sheets and the diversity of their businesses allow them to hold a variety of securities, making them the least of investors’ worries. Moreover, the backstop of being “too big to fail” since the 2008 financial crisis has attracted billions of deposits to the largest banks since Silicon Valley Bank’s collapse.
Following the collapse of Silicon Valley Bank and Signature Bank, JPMorgan Chase & Co. saw deposits grow significantly, with businesses and customers flocking to the banking titan. Deposits at big banks had been falling for several quarters as consumers spent down their pandemic savings and businesses tapped into their stored cash to pay bills. But after the failures of the midsize banks, some businesses withdrew their funds from smaller banks and moved them into the larger banks. JPMorgan Chase & Co. grew deposits by $37 billion during the quarter, up to $2.4 trillion.
While the largest banks seem to be weathering the current turmoil in the industry just fine, midsize banks, such as KeyCorp, Zions Bank, and Comerica, are due to report next week, which will attract more attention than usual. Banks saw their stocks get hit hard due to being similar in business and size to Silicon Valley Bank and Signature Bank. Although the biggest banks reported strong results, most banks on their calls with investors still expect some sort of slowdown in the US economy later this year. Citigroup’s CEO, Jane Fraser, told investors that the bank now expects a “mild” recession at the end of the year, saying there are signs that consumer spending is slowing down.
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