In a pivotal moment for the financial industry, leaders of major Wall Street banks, including Wells Fargo (WFC), Citigroup (C), and JPMorgan Chase (JPM), have collectively indicated that 2023 marked the peak of their net interest income (NII). Wells Fargo projected a 9% decline in NII for 2024, surprising analysts, while Citigroup expects a modest decrease. JPMorgan, although forecasting a stable NII for 2024, anticipates a gradual drop over the year. This shift follows a lucrative 2023, buoyed by the Federal Reserve’s rapid rate hikes, which saw the four banking giants collectively amass $253 billion in NII, significantly higher than in previous years. However, the anticipated rate cuts and increased costs on deposits have prompted a more cautious outlook for the coming year.
The banks’ forecasts reflect a complex array of factors affecting their financial performance, including interest rate trajectories, consumer behavior, and competitive dynamics. Wells Fargo CFO Mike Santomassimo emphasized the uncertainty of these factors, underscoring the limited control banks have over external economic conditions. Meanwhile, Bank of America (BAC), though not providing a specific NII forecast, reported a steady performance in this area, as mentioned by CFO Alastair Borthwick. The bank has seen growth in deposits and expects a modest increase in loan demand this year.
Market Overview:
-Wall Street giants foresee a cooling net interest income (NII) tide after 2023's $250 billion windfall.
-Wells Fargo predicts a 9% NII decline, Citigroup anticipates a modest dip, and even JPMorgan expects quarterly drops despite maintaining flat 2024 levels.
-Uncertainty around future rate cuts, rising deposit costs, and economic headwinds fuel caution.
Key Points:
-The 2023 Fed rate hike bonanza, while initially painful for smaller banks, fueled record NII for top players.
-But with potential rate cuts on the horizon, banks scramble to manage higher deposit outlays and stave off customer loss.
-Wells Fargo highlights the volatility, emphasizing their guidance rests on "a series of market assumptions which may be right or may be wrong."
-Citigroup, already past its peak NII, plans a 20,000-job cut amid its broader restructuring, signaling industry-wide cost-cutting measures.
Looking Ahead:
-Consumer behavior, inflation, and geopolitical tensions add layers of complexity to the NII outlook.
-Loan growth, particularly in credit cards, offers some hope, but may not fully offset deposit cost pressures.
-Adaptability and efficient resource allocation will be crucial for banks to navigate the post-peak NII landscape.
JPMorgan, bolstered by its acquisition of First Republic, achieved a record NII in the last quarter but anticipates a decline. The bank’s 2024 NII outlook, factoring in six rate cuts and deposit repricing, suggests a reduction of $8 billion from its annualized figure in the fourth quarter. Citigroup, which peaked in NII in the second quarter of 2023, reported $47.6 billion in NII last year and forecasts a slight decrease this year. Additionally, Citigroup is undertaking a significant job reduction as part of its global overhaul.
Wells Fargo expects a 7% to 9% drop in NII compared to last year, citing factors like loan average decline and deposit attrition in consumer banking and lending. CEO Charlie Scharf cautioned about the uncertainty of these forecasts, highlighting the volatile nature of market assumptions. This cautious stance across major banks indicates a significant shift in their revenue outlook, underscoring the broader economic challenges and uncertainties that lie ahead.
