Facebook reports 4Q profit, user growth despite challengesUpdated: 01/29/2020 5:00 PMSan Francisco (AP) — Facebook had a strong fourth quarter as it made more money on advertising and added more users despite challenges around regulati...
Record sales push Tesla to 2nd straight quarterly profitUpdated: 01/29/2020 4:45 PMDETROIT (AP) — Record electric vehicle sales in the fourth quarter helped to push Tesla Inc. to its second-straight quarterly profit, giving bullish i...
Microsoft plows ahead in cloud business growthUpdated: 01/29/2020 4:41 PMMicrosoft on Wednesday reported another solid quarterly report card to Wall Street, as it plows ahead in selling its cloud computing services to big b...
Europe steps up China virus fight, aims to repatriate 600Updated: 01/29/2020 4:30 PMPARIS (AP) — Europe stepped up efforts Wednesday to counter a spreading virus from China that has killed more than 130 people. Airlines have canceled ...
Fed leaves key rate alone but sees virus among global risksUpdated: 01/29/2020 4:03 PMWASHINGTON (AP) — The Federal Reserve kept its key interest rate unchanged at a low level Wednesday amid an economy that looks solid but faces potenti...
Leaked report shows United Nations suffered hackUpdated: 01/29/2020 3:59 PMGENEVA (AP) — Sophisticated hackers infiltrated U.N. networks in Geneva and Vienna last year in an apparent espionage operation that top officials at ...
Grounded jet sends Boeing to first annual loss in 2 decadesUpdated: 01/29/2020 3:47 PMBoeing, an icon of American manufacturing, suffered its first annual financial loss in more than two decades while the cost of fixing its marquee airc...
More airlines drop flights to China as virus spreadsUpdated: 01/29/2020 3:30 PMBANGKOK (AP) — British Airways halted all flights to China and American Airlines suspended Los Angeles flights to and from Shanghai and Beijing as eff...
Trump celebrates major rewrite of North American trade rulesUpdated: 01/29/2020 3:28 PMWASHINGTON (AP) — President Donald Trump on Wednesday signed into law a major rewrite of the rules of trade with Canada and Mexico, celebrating the fu...
Advocates: Crucial bank law softened under Trump proposalUpdated: 01/29/2020 2:46 PMWASHINGTON (AP) — The Trump administration is proposing changes to a decades-old law designed to keep banks from discriminating against the poor and d...
|Last Update: 2:57 PM ET 01/14/2020|
|Banks post big profits, but lower interest rates are a worry|
By KEN SWEET
NEW YORK (AP) - So far, it appears 2019 was another record year for Wall Street.
Trading of stocks and bonds rebounded after a terrible end to 2018 and consumers spent tons of money on their credit cards, buoyed by a strong job market and steady economic growth. On Tuesday, JPMorgan Chase reported a record annual profit, while Citigroup posted its best results since before the Great Recession.
- Given record-high equity prices, very low unemployment, a growing economy at about 2%, a stable U.S. dollar, and positive developments in trade, it is not surprising to see the results that are coming in, - said Mark Doctoroff, global co-head of the Financial Institutions Group at MUFG.
The biggest concern going forward is that lower interest rates will slow down Wall Street - s decade-long profit party. The Federal Reserve cut interest rates three times in 2019, each time by a quarter of a percentage point. That - s started to cut into bank - s interest income - the difference between what a bank charges for loans and what it pays out on deposits - which has been a major profit driver in the last couple of years.
The improved results at JPMorgan and Citigroup were partly attributed to a surge in trading revenue. In late 2018, plunging stock markets and fears of a possible recession weighed on bank profits in the final quarter. In 2019, the Fed's rate cuts and a - Phase 1 - trade agreement between China and the U.S. helped alleviate recession fears. Revenue from trading jumped 55% at JPMorgan and 49% at Citi in last year's fourth quarter.
The banks' other businesses did well, but lower interest rates were a hurdle. JPMorgan Chase - s net interest revenue fell 2% while the same metric at Citigroup fell 1%.
Wells Fargo also reported quarterly earnings Tuesday. Its results are messy due the bank's seemingly unending legal troubles and it being restrained from growing its business by the Federal Reserve. It took a $1.5 billion charge last quarter to cover its legal costs and is on its fourth CEO in less than four years. Charles Scharf, who previously ran Visa Inc. and BNY Mellon, said Wells Fargo still had not - effectively addressed - the cultural problems that caused the bank's cultural problems in the first place.
Even setting aside the legal issues, things do not look good for Wells Fargo, which is more susceptible to fluctuations in interest rates because of its large consumer banking business. It saw interest revenue fall 8%.
Bank executives say that the U.S. economy is healthy and growing steadily, and the American consumer is spending and borrowing with confidence, which should keep bank profits healthy in 2020.
- Wages are up, cash flow is up, investments are up. We don't see anything that's concerning, - said JPMorgan Chief Executive Jamie Dimon in a conference call with reporters.
The biggest challenge could be lower interest rates, as the Fed has signaled it intends to keep rates steady for the foreseeable future. There's also future worries about the massive amount of debt borrowers have taken on, and whether that can withstand a future economic downturn.
- Lower interest rates make it a lot harder to grow profits from here, - said Kyle Sanders, an analyst with Edward Jones who covers Wells Fargo. - A lot of things have to go the right way to keep this earnings momentum for the banks."
But other analysts say that if banks continue to cut costs to make up for falling interest rate revenue, and the U.S. economy keeps growing steadily, banks could have another highly profitable year in 2020.
The rest of the Wall Street banks - Goldman Sachs, Morgan Stanley and Bank of America - will report later this week as will a host of regional banks such as PNC, U.S. Bank, and Truist, the new bank created by the merger of BB&T and SunTrust.
Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.