JP Morgan and Bank of America profits shrink as US banks pay for SVB failure

JP Morgan and Bank of America reported a slide in profits in the final three months of the year today as US lenders paid for the rescue of smaller regional banks in the US.

In its fourth quarter earnings, JP Morgan, the US’s biggest lender by assets, said profits for the final three months of the year came in at $9.3bn, down from $11bn in the same period last year.

Income was dented by a $2.9bn payment to top up the US government’s bank rescue vehicle, which swooped in to save depositors at smaller lenders including Silicon Valley Bank and Signature Bank last year. The payments have hit profits across America’s biggest banks in the final quarter of the year, with Bank of America’s profits shrinking and Citigroup swinging to a loss today.

JP Morgan capped off a record year despite the final quarter slowdown as rising interest rates and the increased cost of borrowing boosted banks around the world.

The bank generated nearly $50bn of profit through the year, $4.1bn of which had come from First Republic, which it saved from collapse earlier in May.

Chief Jamie Dimon said it had been a “solid” quarter but the bank’s performance through 2023 had been reflective of “over-earning” on net interest income and credit.

He added that the US economy was “resilient” but warned the economy is being “fueled by large amounts of government deficit spending and past stimulus.”

Investment banking fees dried up last year as volatility dampened the appetite for dealmaking globally. However, revenues from the division have risen through the year for JP Morgan and came in at $1.6bn, for the final three months, up 13 per cent. 

Over the last year the bank’s shares climbed over 20 per cent, fuelled by a rally at the end of the year as markets bet that interest rates will be lowered. 

The firm said it had also bolstered its provision for losses on bad loans to $366m, driven by a deterioration in the commercial real estate market. The prior-year provision was $284m.

The results came as a slew of America’s biggest banks reported quarterly earnings on Friday.

Rival Bank of America similarly posted a drop in fourth quarter profits as the lender took $2.1bn in charges to refill the government deposit insurance fund.

The second-largest U.S. lender posted net income of $3.1bn, or 35 cents a share, for the three months to the end of the year. That compares with $7.1bn, or 85 cents a share, a year earlier.

Citigroup similarly swung to a $1.8bn loss after the payment to the insurance fund, and said today it expects to further reduce its headcount.

 Chief Jane Fraser described 2024 as a “turning point year” for the lender.

“We made substantial progress simplifying Citi and executing our strategy in 2023,” she said in a statement.