While issuing warnings for the future of their business as well as for the financial industry as a whole, strong performance was reported by three big United States banks

The reports of the banks clearly indicated that lower interest rate is the biggest risk in the near future for the banks that would impact the bottom line of the lenders. However there are already signals that the bottom line of the banks is being squeezed.

More expenditure towards deposits affected a drop in the net interest margins of both JPMorgan Chase & Co and Wells Fargo & Co. for 2019, the outlook for net interest income was dropped to “about $57.5 billion” by the biggest bank of the US – JPMorgan, compared to its February estimate of more than $58 billion.

A similar decline in the net interest margin was also reported by the Citigroup a day earlier.

There was a drop in the shares of most banks on Tuesday but some recovered later.

“We’re not as dynamically correlated to rate changes,” Goldman Sachs Chief Financial Officer Stephen Scherr told analysts while also noting that fewer deposits “than the big commercial banks” are held by the bank.

The lingering trade war between the US and China has unnerved investors which has resulted in a drop in the trading volumes have at large US banks. The ability of the banks to increase revenues has been hampered by the US Treasury yield curve getting flatter and the increasing chances of a US interest rate cut.

Profit margins at banks could come under pressure if there is a interest cut in July by the US Federal Reserve, worry investors even as they have gained financially from the recent spate of higher interest rates. The Chief Financial Officer Jennifer Piepszak of JPMorgan said that the lender now expects the US Federal Reserve to announce as many as three rate cuts.

The earnings report from the three banks however also carried some good news. The continued buoyancy in the consumer business of the banks helped them to offset weak performance in some of the other business areas. There was a 2 per cent increase in average loans in credit-card loans in the last quarter – preceded by a 8 per cent increase in the previous quarter, at JPMorgan Chase. On the other hand, Wells Fargo reported a 6 per cent increase in debit and credit card spending during the quarter indicating continued confidence among consumers in spending more.

And even though there are rising and concerns about the impact of the lingering US-China trade war, a bullish outlook about the US economy – the largest in the world, was given by Wells Fargo Chief Executive Officer Jamie Dimon. Investors and analysts often consider the performance of this bank to be a bellwether for the health of the U.S. economy.

“We continue to see positive momentum with the U.S. consumer – healthy confidence levels, solid job creation and rising wages – which are reflected in our Consumer & Community Banking results,” Dimon said in a statement.

(Adapted from Reuters.com)

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