Finance

The bank said first-quarter profit rose 6% to $13.42 billion, or $4.44 per share, from a year earlier, boosted by its takeover last year of First Republic during the regional banking crisis.
But in guidance for 2024, the bank said it expected net interest income of around $90 billion, which is essentially unchanged from previous wording.
That appeared to disappoint investors, who expected JPMorgan to raise its guidance by $2 billion to $3 billion for the year; shares of JPM slipped 3.5% in premarket trading.

Jamie Dimon, President and CEO of JPMorgan Chase, speaking on CNBC’s “Squawk Box” at the World Economic Forum Annual Meeting in Davos, Switzerland, on Jan. 17, 2024.
Adam Galici | CNBC

JPMorgan Chase on Friday posted profit and revenue that topped Wall Street estimates as credit costs and trading revenue came in better than expected.
Here’s what the company reported compared with estimates from analysts surveyed by LSEG, formerly known as Refinitiv:

Earnings: $4.44 per share, vs. $4.11 expected
Revenue: $42.55 billion, vs. $41.85 billion expected

The bank said first-quarter profit rose 6% to $13.42 billion, or $4.44 per share, from a year earlier, boosted by its takeover of First Republic during the regional banking crisis last year. Per-share earnings would’ve been 19 cents higher excluding a $725 million boost to the FDIC’s special assessment to cover the costs tied to last year’s bank failures.
Revenue climbed 8% to $42.55 billion as the bank generated more interest income thanks to higher rates and larger loan balances.
JPMorgan posted a $1.88 billion provision for credit losses in the quarter, far below the $2.7 billion expected by analysts. The provision was 17% smaller than a year ago, as the firm released some reserves for loan losses, rather than building them as it did a year earlier.
While trading revenue overall was down 5% from a year earlier, fixed income and equities results topped analysts’ expectations by more than $100 million each, coming in at $5.3 billion and $2.7 billion, respectively.
But in guidance for 2024, the bank said it expected net interest income of around $90 billion, which is essentially unchanged from previous wording.

That appeared to disappoint investors, who expected JPMorgan to raise its guidance by $2 billion to $3 billion for the year; shares of JPM slipped 3.5% in premarket trading.
JPMorgan CEO Jamie Dimon called his company’s results “strong” across consumer and institutional areas, helped by a still-buoyant U.S. economy, though he struck a note of caution about the future.
“Many economic indicators continue to be favorable,” Dimon said. “However, looking ahead, we remain alert to a number of significant uncertain forces” including overseas conflict and inflationary pressures.
Though the biggest U.S. bank by assets has navigated the rate environment well since the Federal Reserve began raising rates two years ago, smaller peers have seen their profits squeezed.
The industry has been forced to pay up for deposits as customers shift cash into higher-yielding instruments, squeezing margins. Concern is also mounting over rising losses from commercial loans, especially on office buildings and multifamily dwellings, and higher defaults on credit cards.
Still, large banks are expected to outperform smaller ones this quarter.
Shares of JPMorgan have jumped 15% this year, outperforming the 3.9% gain of the KBW Bank Index.
Wells Fargo and Citigroup also report quarterly results Friday, while Goldman Sachs, Bank of America and Morgan Stanley report next week.  
This story is developing. Please check back for updates.

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The bank said profit fell 27% from a year earlier to $3.37 billion, or $1.58 a share, on higher expenses and credit costs.
Revenue slipped 2% to $21.10 billion, mostly driven by the impact of selling an overseas business in the year-earlier period.

Jane Fraser, CEO of Citi, speaks during the Milken Institute Global Conference in Beverly Hills, California, on May 1, 2023. 
Patrick T. Fallon | AFP | Getty Images

Citigroup on Friday posted first-quarter revenue that topped analysts’ estimates, helped by better-than-expected results in the bank’s investment banking and trading operations.
Here’s how the company performed, compared with estimates from LSEG, formerly known as Refinitiv:

Earnings: $1.86 per share, adjusted, vs. $1.23 expected
Revenue: $21.10 billion vs. $20.4 billion expected

The bank said profit fell 27% from a year earlier to $3.37 billion, or $1.58 a share, on higher expenses and credit costs. Adjusting for the impact of FDIC charges as well as restructuring and other costs, Citi earned $1.86 per share, according to LSEG calculations.
Revenue slipped 2% to $21.10 billion, mostly driven by the impact of selling an overseas business in the year-earlier period.
Investment banking revenue jumped 35% to $903 million in the quarter, driven by rising debt and equity issuance, topping the $805 million StreetAccount estimate.
Fixed income trading revenue fell 10% to $4.2 billion, edging out the $4.14 billion estimate, and equities revenue rose 5% to $1.2 billion, topping the $1.12 billion estimate.
The bank also posted an 8% gain to $4.8 billion in revenue in its Services division, which includes businesses that cater to the banking needs of global corporations, thanks to rising deposits and fees.

Shares of the bank climbed about 1% in premarket trading.
Citigroup CEO Jane Fraser previously said her sweeping corporate overhaul would be complete by March, and that the firm would give an update to severance expenses along with first-quarter results.
“Last month marked the end to the organizational simplification we announced in September,” Fraser said in the earnings release. “The result is a cleaner, simpler management structure that fully aligns to and facilitates our strategy.
Last year, Fraser announced plans to simplify the management structure and reduce costs at the third-biggest U.S. bank by assets. Now, analysts want to know if Citigroup can maintain its previous guidance for full-year revenue and expense targets.
JPMorgan Chase reported results earlier Friday, and Goldman Sachs reports on Monday.
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Wells Fargo first-quarter earnings and revenue beat Wall Street expectations, despite a decline in net interest income.
Net interest income decreased 8% in the quarter, due to the impact of higher interest rates on funding costs and a shift by customers to higher yielding deposit products.
“Our solid first quarter results demonstrate the progress we continue to make to improve and diversify our financial performance,” Wells CEO Charlie Scharf said in a statement.

A woman walks past Wells Fargo bank in New York City, U.S., March 17, 2020.
Jeenah Moon | Reuters

Wells Fargo on Friday reported first-quarter earnings and revenue that beat Wall Street expectations, despite a decline in net interest income.
Here’s how the company performed compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Earnings per share: $1.26 cents adjusted vs. $1.11 cents expected
Revenue: $20.86 billion vs. $20.20 billion expected

Shares of Wells dipped after the earnings report in premarket trading Friday morning.
Wells said its net interest income, a key measure of what a bank makes on lending, decreased 8% in the quarter, due to the impact of higher interest rates on funding costs and a shift by customers to higher-yielding deposit products.
Net interest income for 2024 is expected to post a decline in the 7% to 9% range, unchanged from its prior guidance.
The San Francisco-based bank saw net income decline to $4.62 billion, or $1.20 per share, from $4.99 billion, or $1.23 per share, a year earlier. Excluding a Federal Deposit Insurance Corp. charge of $284 million, or 6 cents per share, tied to the bank failures in 2023, Wells said it earned $1.26 per share, topping analyst estimates of $1.11 per share.
Revenue of $20.86 billion came in above the $20.20 billion estimate.

“Our solid first quarter results demonstrate the progress we continue to make to improve and diversify our financial performance,” Wells CEO Charlie Scharf said in a statement.
“The investments we are making across the franchise contributed to higher revenue versus the fourth quarter as an increase in noninterest income more than offset an expected decline in net interest income,” Scharf added.
For the latest period, the bank set aside $938 million as provision for credit losses. The bank said the provision included a decrease in the allowance for credit losses, driven by commercial real estate and auto loans.
Wells’ stock is up more than 15% year to date, beating the S&P 500’s 9% return.
The bank repurchased 112.5 million shares, or $6.1 billion, of common stock in first quarter.

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Investors looking to weather a volatile market may want to opt for physical gold over gold stocks.
That’s according to George Milling-Stanley, one of the world’s experts in gold and the chief gold strategist at State Street Global Advisors.

“One of the reasons I own gold bar(s) is that I believe it offers me some protection against potential weakness in the equity market,” Milling-Stanley told CNBC’s “ETF Edge” this week. “When the equity market goes down, gold mining stocks remember that they’re equities, and they tend to go down with the general level of the equity market. So, they’re not offering me that extra level of protection.”
Milling-Stanley’s firm runs two exchange-traded funds that track the performance of the spot price of gold: the SPDR Gold Shares ETF (GLD) and SPDR Gold MiniShares Trust (GLDM).
They’re differentiated by their gross expense ratios — 0.40% for GLD and 0.10% for GLDM — and it’s this key distinction that also differentiates the type of investor they attract, according to Milling-Stanley.
“If you are someone who wants to trade … or if you want to be a tactical player — that means you need to be able to move very, very quickly — then GLD’s liquidity after 20 years now means that that has very, very low trading costs compared to any other gold ETF,” he said. “If you have a million dollars and you want to put a million dollars into gold and leave it out there, then GLDM with its lower expense ratio makes more sense for you.”
As of Thursday’s close, GLD and GLDM were both up 15% year to date.

Bullion, bitcoin and boomers

The notion that gold is a “fuddy-duddy” investment no longer rings true, according to Milling-Stanley. State Street’s 2023 Gold ETF Impact Study found that millennials had greater portions of their portfolios allocated in gold than older generations. 
The metal’s popularity among younger investors comes as bitcoin continues to attract assets from both millennials and Generation Z. A Policygenius survey published this week found that millennials were more likely to own bitcoin than any other generation, and Gen Z was more likely to own bitcoin than stocks, bonds or real estate.
But Milling-Stanley pushed back on the idea that gold and bitcoin are competing for assets across the board.
“Bitcoin may well be some competition for the people who want to take a tactical position in gold and just wait for the price to go up and sell. I think that bitcoin may well offer competition there,” he said. “But I don’t think that bitcoin really competes in terms of a long-term strategic allocation, and that’s where I think gold really comes into its own.”
Disclaimer

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The evolving picture on interest rates — dubbed “higher for longer” as expectations for rate cuts this year shift from a once-anticipated six reductions to perhaps three – will boost revenue for big banks while squeezing many smaller ones.
JPMorgan Chase, the nation’s largest lender, kicks off earnings for the industry on Friday, followed by Bank of America and Goldman Sachs next week.
The focus for all of them will be how the shifting view on interest rates will impact funding costs and holdings of commercial real estate loans.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 7, 2024.
Brendan Mcdermid | Reuters

The benefits of scale will never be more obvious than when banks begin reporting quarterly results on Friday.
Ever since the chaos of last year’s regional banking crisis that consumed three institutions, larger banks have mostly fared better than smaller ones. That trend is set to continue, especially as expectations for the magnitude of Federal Reserve interest rates cuts have fallen sharply since the start of the year.

The evolving picture on interest rates — dubbed “higher for longer” as expectations for rate cuts this year shift from six reductions to perhaps three – will boost revenue for big banks while squeezing many smaller ones, adding to concerns for the group, according to analysts and investors.
JPMorgan Chase, the nation’s largest lender, kicks off earnings for the industry on Friday, followed by Bank of America and Goldman Sachs next week. On Monday, M&T Bank posts results, one of the first regional lenders to report this period.
The focus for all of them will be how the shifting view on interest rates will impact funding costs and holdings of commercial real estate loans.
“There’s a handful of banks that have done a very good job managing the rate cycle, and there’s been a lot of banks that have mismanaged it,” said Christopher McGratty, head of U.S. bank research at KBW.

Pricing pressure

Take, for instance, Valley Bank, a regional lender based in Wayne, New Jersey. Guidance the bank gave in January included expectations for seven rate cuts this year, which would’ve allowed it to pay lower rates to depositors.

Instead, the bank might be forced to slash its outlook for net interest income as cuts don’t materialize, according to Morgan Stanley analyst Manan Gosalia, who has the equivalent of a sell rating on the firm.
Net interest income is the money generated by a bank’s loans and securities, minus what it pays for deposits.
Smaller banks have been forced to pay up for deposits more so than larger ones, which are perceived to be safer, in the aftermath of the Silicon Valley Bank failure last year. Rate cuts would’ve provided some relief for smaller banks, while also helping commercial real estate borrowers and their lenders.
Valley Bank faces “more deposit pricing pressure than peers if rates stay higher for longer” and has more commercial real estate exposure than other regionals, Gosalia said in an April 4 note.
Meanwhile, for large banks like JPMorgan, higher rates generally mean they can exploit their funding advantages for longer. They enjoy the benefits of reaping higher interest for things like credit card loans and investments made during a time of elevated rates, while generally paying low rates for deposits.
JPMorgan could raise its 2024 guidance for net interest income by an estimated $2 billion to $3 billion, to $93 billion, according to UBS analyst Erika Najarian.
Large U.S. banks also tend to have more diverse revenue streams than smaller ones from areas like wealth management and investment banking. Both should provide boosts to first-quarter results, thanks to buoyant markets and a rebound in Wall Street activity.

CRE exposure

Furthermore, big banks tend to have much lower exposure to commercial real estate compared with smaller players, and have generally higher levels of provisions for loan losses, thanks to tougher regulations on the group.
That difference could prove critical this earnings season.
Concerns over commercial real estate, especially office buildings and multifamily dwellings, have dogged smaller banks since New York Community Bank stunned investors in January with its disclosures of drastically larger loan provisions and broader operational challenges. The bank needed a $1 billion-plus lifeline last month to help steady the firm.
NYCB will likely have to cut its net interest income guidance because of shrinking deposits and margins, according to JPMorgan analyst Steven Alexopoulos.
There is a record $929 billion in commercial real estate loans coming due this year, and roughly one-third of the loans are for more money than the underlying property values, according to advisory firm Newmark.
“I don’t think we’re out of the woods in terms of commercial real estate rearing its ugly head for bank earnings, especially if rates stay higher for longer,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual.
“If there’s even a whiff of problems around the credit experience with your commercial lending operation, as was the case with NYCB, you’ve seen how quickly that can get away from you,” he said.

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Carey Halio, Goldman Sachs head of strategy and investor relations, is getting promoted to global treasurer at the bank, according to people familiar with the matter. 
Her new role, effective June 1, encompasses authority over the firm’s more than $1.6 trillion balance sheet. She’ll report to Chief Financial Officer Denis Coleman.
Philip Berlinski, the previous global treasurer, is leaving the bank.

Carey Halio, Goldman Sachs’ head of strategy and investor relations, is getting promoted to global treasurer at the bank, according to people familiar with the matter. 
Her new role, effective June 1, encompasses authority over the firm’s more than $1.6 trillion balance sheet, with responsibilities including overseeing the firm’s liquidity, funding and capital. She will report to Denis Coleman, Goldman Sachs’ chief financial officer. 

Philip Berlinski, the previous global treasurer, is leaving the bank to become co-chief operating officer of Millennium Management, a $62 billion hedge fund, according to the Financial Times. 
As part of her new role, Halio will oversee a team of about 900 people, the people familiar said. She will also serve on the management committee.
Prior to running strategy and investor relations, Halio was the CEO of Goldman Sachs Bank USA and deputy treasurer of Goldman Sachs. She joined the firm in 1999 as a summer associate in credit risk and rejoined the following year, ultimately becoming the head of the Americas Financial Institutions team in credit risk. 
Jehan Ilahi, who worked with Halio for years in strategy and investor relations, will become head of investor relations. 
Goldman Sachs is slated to report first-quarter earnings on Monday.

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Gold has always held an allure. The earliest civilisations used it for jewellery; the first forms of money were forged from it. For centuries kings clamoured to get their hands on the stuff. Charlemagne conquered much of Europe after plundering vast amounts of gold from the Avars. When King Ferdinand of Spain sent explorers to the new world in 1511, he told them to “get gold, humanely if you can, but all hazards, get gold.” Ordinary men also clamoured for it after James Marshall, a labourer, found a flake of gold while constructing a saw mill in Sacramento, California, in 1848.People are once again spending big on the precious metal. On April 9th its spot price hit a record of $2,364 an ounce, having risen by 15% since the start of March. That gold is surging makes a certain degree of sense: the metal is seen to be a hedge against calamity and economic hardship. It tends to rally when countries are at war, economies are uncertain and inflation is rampant.But only a certain degree. After all, why is it surging precisely now? Inflation was worse a year ago. The Ukraine war has arrived at something of a stalemate. In the month after Hamas’s attack on Israel on October 7th, the price of gold rose by just 7%—half the size of its more recent rally. Moreover, investors had only recently appeared to have gone off the stuff. Those who thought gold would act as a hedge against inflation were proven sorely wrong in 2022 when prices slipped even as inflation spiralled out of control. Cryptocurrencies like bitcoin—often viewed as a substitute for gold—have gained popularity. Longtime gold analysts are puzzled by its ascent.An investor who cannot understand a rally on the basis of fundamentals must often consider a simpler rationale: there have been more eager buyers than sellers. So, who is buying gold in bulk?Whoever it is, they are not using exchange-traded funds, or etfs, the tool most often used by regular folk through their brokerage accounts, as well as by some institutional investors. There have, in fact, been net outflows from gold etfs for more than a year. After tracking each other closely throughout 2020 and 2021, gold prices and etf inflows decoupled at the end of 2022. Although prices are up by around 50% since late 2022, gold held by etfs has dropped by a fifth.That leaves three buyers. The first, and biggest, are central banks. In general, central bankers have been increasing the share of reserves that are stored in gold—part of an effort to diversify away from dollars, a move that gathered pace after America froze Russia’s foreign-exchange reserves in response to its invasion of Ukraine. Nowhere is this shift clearer than in China, which has raised the share of its reserves held in gold from 3.3% at the end of 2021 to 4.3%. Trading has picked up in the so-called over-the-counter market, in which central banks buy much of their gold. China’s central bank added 160,000 ounces of gold, worth $384m, in March.The second is big institutions, such as pension or mutual funds, which may have been making speculative bets or hedges on gold—in case inflation does come back or as protection against future calamities. Activity in options and futures markets, where they tend to do most of their trading, is elevated.The third potential buyer is the most intriguing: perhaps private individuals or companies are buying physical gold. In August it became possible to buy hunks of the metal at Costco, an American superstore beloved by the cost-conscious middle classes for selling jumbo-size packs of toilet paper, fluffy athletic socks and rotisserie chickens, all at super-low prices. The retailer started selling single-ounce bars of gold, mostly online, for around $2,000—just a hair higher than the spot value of bullion at the time. It sold out almost immediately, and continues to do so whenever it restocks. Analysts at Wells Fargo, a bank, estimate that shoppers are buying $100m-200m worth of gold each month from the superstore, alongside their sheet cakes and detergent.That would be 40,000 to 80,000 ounces of gold each month; or, in other words, up to half as much as the Chinese central bank. Such behaviour is perhaps a harbinger of a trend. Inflation in America is creeping up again. It has overshot expectations for three consecutive months, and would reach 4% in 2024 if current trends were to continue. Medium-term expectations, which had dropped, have begun climbing. As shoppers peruse Costco’s wares, worrying about the cost of living, it is it any wonder they are tempted by a bit of bullion?■Read more from Buttonwood, our columnist on financial markets: How to build a global currency (Apr 4th)How the “Magnificent Seven” misleads (Mar 27th)How to trade an election (Mar 21st)Also: How the Buttonwood column got its name More

Optimism about India tends to spike now and again. In 1996, a few years after the country opened to foreign capital, the price of property in Mumbai, India’s financial hub, soared to the highest of any global city, according to one account. In 2007 the country’s economy grew at an annual rate of 9%, leading many to speculate that it might hit double digits. Yet after each of these booms, hopes were dashed. The late-2000s surge made way for financial turbulence in the 2010s.Today India again appears to be at the start of an upswing. In the year to the fourth quarter of 2023, GDP growth roared at 8.4%. But such figures tend to be treated with a pinch of salt. Economists inside and outside the government are debating just how fast the economy is growing—a question that has particular piquancy ahead of a general election that begins on April 19th. So what is India’s actual growth rate? And is the economy accelerating?Chart: The EconomistTo answer these questions, start with the 8.4% figure. Nominal GDP growth in the same period was 10.1%, implying that inflation was only 1.7%. Although that may seem suspect, given that India’s consumer prices rose by 5.4% over the year, it can be explained. Like many other countries, India’s GDP deflator puts a lot of weight on wholesale producer prices. These are volatile and grew by only 0.3% over the year.India’s approach does have oddities, however. In 2015 the country changed its GDP calculation, starting with figures from 2011, from one that measured real GDP directly by observing changes in production quantities to one that measured nominal GDP through surveys and financial reports, before then deflating them to obtain real GDP. It is a complex process: some sectors, such as manufacturing and mining, are deflated using a wholesale price index (WPI); services use a mix of the WPI and consumer prices; other sectors, including construction, use a quantity-based method.In 2017 Arvind Subramanian, then India’s chief economic adviser, observed that the country’s GDP figures were falling out of line with indicators such as credit, electricity use and freight traffic. In 2019 he published a paper suggesting India’s GDP growth in 2011-16 had been overestimated by a few percentage points a year. The numbers have since been mired in controversy, not least because the methodological change came with a revision to historical data that reduced the growth rates achieved by the previous government.Few people suspect foul play in India’s GDP calculations. The old approach struggled to capture changes in the quality of goods, rather than quantities, says Pronab Sen, India’s first chief statistician. But the new method has disadvantages of its own. “Earlier, the chances were we were measuring real GDP growth more accurately, and today we are measuring nominal GDP more accurately,” says Mr Sen.The disadvantages reflect two issues: the choice of deflator, and how the deflation is carried out. More sectors use WPI as their deflator than consumer prices. Indeed, even though WPI does not contain service prices, it is still used for a number of industries, such as hotels, that ought to incorporate them. This is a growing problem. Service sectors already make up more than half India’s GDP and are expanding faster than the rest of the economy. By our calculations, India’s consumer price index, which puts greater weight on services, grew by 20 percentage points more than its GDP deflator from 2011 to 2019—the largest gap in any big economy. From 2003 to 2011, by contrast, it grew by three percentage points less.Then there is how deflation is done. Most countries use a method called “double deflation”, where input and output prices are deflated separately. Consider a manufacturer importing oil for use in production. If oil prices fall, output prices do not and quantities stay the same, real value added should not change. But if the same deflator is used for inputs and outputs, as in India, it would look as if the manufacturer had become more productive.This is what seems to have happened during the 2010s. Oil prices were steady at $90-100 a barrel from 2011 to 2014, before crashing to below $50 over the next two years. India is reliant on oil imports, as the world’s third-biggest consumer of oil, 85% of which is brought in. Although India’s manufacturing sector struggled in this period, GDP data concealed its difficulties.The good news is that since the covid-19 pandemic, the divergence between WPI and consumer prices no longer appears as significant. From December 2011 to 2019, consumer prices grew at a 5.8% annual rate and WPI grew at a 2.6% annual rate. Yet in the four years to December 2023, both measures have grown at around 5.7%. WPI remains volatile, which is why quarterly GDP figures, such as the recent 8.4% growth rate, should be treated with a degree of caution. The number was also boosted by a one-time reduction in subsidy payments and an increase in indirect tax collections, which is why the trend is more likely to be closer to 6.5%—the growth rate of gross value added.India’s government is working towards incorporating services into its price indices. The road to a fully fledged producer-price index and double-deflation will be a long one, however. Mr Sen says many Indian companies would rather not share data on their costs with the government. Statisticians are often reluctant to force the private sector to comply. Meanwhile, collecting wholesale prices is much easier because traders are happy to report them.Do existing data suggest a boom? Since December 2019, real GDP has grown by 4.2% at an average annual rate, meaning that India, like many other countries, has not recovered to its pre-pandemic trend. Corporate and foreign investment remain weak. But looked at since December 2021, India’s overall economy seems robust, having grown at 7.1% annually. Alternative indicators, from electricity use to freight traffic, are strong; surveys of purchasing managers for both manufacturing and services have hit their highest levels in over a decade. Forecasters expect 6.5% annual growth over the next five years. Although real GDP growth from 2011 to 2019 was also officially 6.5% a year, the underlying rate was probably lower, implying genuine acceleration may be under way. The data is noisy, the picture is mixed and yet most government economists would be satisfied with that outcome. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter.Stay on top of our India coverage by signing up to Essential India, our free weekly newsletter. More