JPMorgan and Wells Fargo show resilience amid banking turmoil

Three of the nation’s biggest banks said first quarter net income and revenue surged from a year ago, demonstrating the resiliency of the industry's giants amid the challenges that tested regional lenders in March.

The nation's biggest bank, JPMorgan Chase (JPM) reported a profit of $12.6 billion that was up 52% from the first quarter of 2022. Its revenue of $38.3 billion was up 25% from the year-ago period. Wells Fargo (WFC) earned $5 billion and PNC (PNC) earned $1.7 billion.

The results kicked off a closely-watched earnings season for the nation’s biggest banks. Banks of all sizes will be scrambling over the coming weeks to show investors how they are better positioned than rivals to weather any future turmoil.

JPMorgan shares were up 5.7% in the pre-market following Friday’s earnings release. Wells was up nearly 3% and PNC was roughly flat.

The giants of the industry weren’t totally immune from the chaos surrounding the failures of Silicon Valley Bank and Signature Bank. Deposits at JPMorgan, Wells Fargo and PNC fell by 7%, 8% and 3% from a year ago. JPMorgan and PNC deposits did rise slightly, however, compared with the fourth quarter of 2022.

Even before the turmoil in March, lenders big and small had been losing depositors to money market funds that were willing to offer higher yields as the Federal Reserve boosted interest rates. The outflow of deposits from all of the nation’s banks reached nearly $500 billion last month through March 29, according to recent Fed data.

Banks like JPMorgan and Wells Fargo, because of their size and diversity of their businesses, are better positioned than smaller rivals to weather such periods of uncertainty. Regulators also require them to maintain greater buffers to absorb losses and demonstrate that it has enough liquidity to withstand unexpected economic turmoil.

The rise in interest rates over the past year also benefitted some of these large banks because it allowed them to charge more for their loans. JPMorgan's net interest income was up 48% compared to the year-ago quarter, and it raised its net interest income expectation for all of 2023 to $81 billion. T

Total loans were also up at JPMorgan, as well as for Wells Fargo and PNC.

Investors are looking for any signs that banks are making fewer new loans, which would affect the larger economy by reducing the flow of credit to businesses and consumers. Lending across the industry fell by nearly $105 billion during the two weeks ending March 29, according to the Fed, due mostly to a pullback by smaller institutions.

One lending business has clearly slowed at JPMorgan: mortgages. There is not as much demand for new borrowings now that interest rates are much higher than they were a year ago. Home Lending revenue was down 38%.

JPMorgan and Wells Fargo are both preparing for the possibility that credit conditions worsen. JPMorgan increased its provision for credit losses by 56% compared to a year ago, a sign that it expects more debt to go bad as the economy slows. Provisions at Wells included a $643 million increase in the allowance for credit losses on commercial real estate loans, as well as an increase for credit card and auto loans.

JPMorgan CEO Jamie Dimon said in a release that "the U.S. economy continues to be on generally healthy footings—consumers are still spending and have strong balance sheets, and businesses are in good shape. However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks.”

The challenge faced by his industry, he said, “is distinct” from the 2008 financial crisis “as it has involved far fewer financial players and fewer issues that need to be resolved, but financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending.”

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