Weekly Report – January 17th, 2024

Graph 2024.01.17

Highlight of the Week

Big Banks Release Q4 Earnings

  • JP Morgan, Bank of America, Citibank, and Wells Fargo released Q4 earnings last Friday. Despite a moderate deterioration in credit quality and a hefty FDIC special assessment fee, the 4 largest banks earned $104 billion for the full year 2023, up 11% from a year earlier.
    • The four largest banks charged off $6.6 billion in loans, twice as much as in the fourth quarter of 2022. Most of the charge-offs were from Office CRE loans and credit cards. Although bank executives are largely maintaining that the increase in loan losses is not a cause for concern, Wells Fargo’s CFO warned that this increase might only be the beginning of the charge-off cycle.
    • Also in Q4, the four largest banks recorded a one-time expense for an FDIC special assessment fee, which heavily dragged down profits and caused EPS to miss targets. This special assessment fee will be used to replenish the Deposit Insurance Fund, which paid out nearly $16 billion to cover the uninsured deposits at SVB and Signature Bank in 2023. The four largest banks set aside almost $9 billion alone to cover the fee. More than 95% of the special assessment fee will be shouldered by banks with over $50 billion in assets.
    • Citibank reported a loss for the quarter, with announcements of restructuring and a planned 10% staff reduction – 20,000 employees.  These announcements certainly set a negative market tone going into full bank earnings season this month.
  • Overall Q4 earnings from the four largest banks offered a tepid 2024 outlook to investors. These banks expect 2024 net interest income (‘NII’) to decrease compared to 2023, and guidance from Wells Fargo indicates that NII will trough toward the end of the year. The banks also shared an expectation that Credit Cards will drive loan growth in 2024, as consumers savings dwindle. However, bank executives are optimistic that there will be increased deal activity next year and that debt underwriting fees will continue to grow.
  • In the weeks ahead, regional banks will release earnings. NII will likely continue to compress, though at a lower rate than last quarter. Investors will pay to particular attention to loan growth that might help offset deposit pricing pressures, charge offs, and any guidance that might suggest weaknesses in loan portfolios.

Rate Curves

Graph 2024.01.17
Category: Market Updates
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