Higher interest rates boost US bank earnings

Large US banks reported higher third-quarter earnings yesterday, reflecting the benefits of higher interest rates for the financial sector with little of the downside that has worried financial markets this week. Shares of JPMorgan Chase, Citigroup and Wells Fargo all rose in pre-market trading following the stream of reports, the unofficial kickoff of earnings season.

Banks typically win higher profits from interest rates but the sell-off this week reflects worries that spiking interest rates could shock the global economy. “The economy is still very strong,” said JPMorgan Chief Executive Jamie Dimon, who said the rise in interest rates thus far was unsurprising in light of a strengthening US economy and not worrisome at this point. In the bank’s statement, Dimon had warned of a potential economic hit from “increasing economic and geopolitical uncertainties.”

And in a conference call with reporters, Dimon offered a litany of concerns, including trade conflicts, Brexit, the unwinding of quantitative easing stimulus programs and geopolitical concerns. Net income at JPMorgan for the three-month stretch was $8.4 billion, up 24.5 per cent. Revenues gained 5.2pc to $27.8 bn.

In consumer banking, gains in the credit card and auto loans segment helped offset a drop in revenues in home lending. JPMorgan experienced mixed results in its trading business, with fixed income trading suffering a drop while equity markets, emerging markets and commodities all rose. Citigroup reported an 11.8pc rise in profits to $4.6 bn, pointing to growth in South America as a particularly good area. Revenues dipped 0.2pc to $18.4 bn.