Jan 12, 2024 - Economy

Banks say goodbyes to recent profit driver

Illustration of a calculator with downward arrows flashing on the screen.

Illustration: Allie Carl/Axios

A big profit driver for the big banks is expected to subside in 2024.

Why it matters: Soaring interest rates boosted the amount of money banks received from loan interest payments for much of 2023.

Between the lines: Wells Fargo and JPMorgan Chase executives told investors Friday that they expect a decline in so-called net interest income, the difference they earn from loans compared to what they pay out on deposits.

  • That provided a $250 billion haul for the four biggest banks last year, up $80 billion from two years earlier, according to Bloomberg.

Zoom in: The decline will stem from long-term interest rate cuts — which help determine interest rates on bank loans — amid expectations of easier Fed policy later this year.

  • JPMorgan CFO Jeremy Barnum said the bank is projecting six Fed rate cuts this year.
  • "Lower rates will decrease NII," Barnum said on an earnings call.
  • Wells Fargo CFO Michael Santomassimo projected a 7% to 9% decrease in net interest income for the bank.

Of note: Banks aren't worrying about their balance sheets. They've built up what Dimon called a "staggering" capacity to absorb losses — estimated at $514 billion in JPMorgan's case, according to Dimon.

Yes, but: Not all big banks are flourishing.

  • Citigroup CEO Jane Fraser said Friday that the bank will shed about 20,000 positions through 2026 as it continues to restructure its operations.
  • Citi reported a net loss of $1.84 billion in the fourth quarter.
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