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Giant banks show resilience as profits surge

Profits for JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) rose in the third quarter, a show of strength by the largest banks despite headwinds faced by many of their smaller rivals this year.

JPMorgan, the country's largest lender, reported earnings of $13.2 billion that were up 35% from the same period a year ago. Its revenue of $40.7 billion was up 21%. Its net income and revenue beat Wall Street expectations.

CEO Jamie Dimon said in a release that US consumers and businesses "generally remain healthy" but noted a number of economic risks, including the possibility that inflation remains elevated and interest rates continue to rise.

Wars in Ukraine and Israel, he added, could also impact energy, food markets, global trade and geopolitical relationships.

"This may be the most dangerous time the world has seen in decades," he said.

WASHINGTON, DC - SEPTEMBER 22: JPMorgan Chase & Co CEO Jamie Dimon arrives for a Senate Banking, Housing, and Urban Affairs Committee hearing on Capitol Hill September 22, 2022 in Washington, DC. The committee held the hearing for annual oversight of the nation's largest banks. (Photo by Drew Angerer/Getty Images)
JPMorgan Chase CEO Jamie Dimon. (Photo by Drew Angerer/Getty Images) (Drew Angerer via Getty Images)

Profits at Wells Fargo were up 61% from a year ago and 2% at Citigroup. Profits fell at a regional bank, PNC (PNC), a sign that smaller lenders are having a tougher time churning out higher results.

The stocks of JPM, Citigroup and Wells Fargo were all higher Friday morning, while PNC fell.

The results kicked off a closely watched earnings season where banks of all sizes will be trying to show how they are navigating an extended period of high interest rates that is proving to be one of the most challenging for the industry since the 2008 financial crisis.

JPMorgan demonstrated its dominance during the chaos of the spring by winning a government-run auction to purchase the bulk of operations of First Republic after regulators seized the San Francisco lender.

First Republic was one of three sizable regional banks to fail, along with Silicon Valley Bank and Signature Bank. Their seizures triggered a panic in the banking system and outflows of depositors from a number of smaller banks.

A focus for many investors in the coming weeks will be what banks say about a key measure of profitability known as net interest income, which measures the difference between what banks earn on their loans and pay for deposits.

JPMorgan's net interest income of $22.9 billion beat expectations. It was up 5% from the last quarter and 30% jump from the same period a year ago. Excluding its purchase of First Republic, the figure was up 21%.

It also raised expectations for full year net interest income to between $88.5-$89 billion.

Wells Fargo’s net interest income topped Wall Street expectations and it also raised its full-year guidance.

Citigroup also showed improvement in its investment-banking fees, which were up 34% from a year ago. That bodes well for some other giant banks such as Goldman Sachs (GS) and Morgan Stanley (MS) that are heavily reliant on dealmaking for their revenues.

JPMorgan’s investment-banking fees were down 3% from a year ago but up 10% from the second quarter.

These giant banks are certainly not immune from some of the challenges roiling the industry. JPMorgan took $1.5 billion in write-offs for bad loans this quarter, more than double the amount compared to the year ago period.

That is a sign that consumers and businesses are having more problems paying their debts.

However, the bank also set aside less to cover future loan losses, a sign that it may have more confidence about the future.

Another challenge that JPMorgan noted Friday was how it will be affected by a new set of capital requirements recently proposed by US regulators. It said that the new rules will increased the amount of capital it will have to set aside by 25%, or $500 billion.

That is higher than the 19% regulators said would likely apply to the largest banks. That 19%, the bank said in a presentation, "does not tell the full story" and it believes that "increases of this magnitude are not warranted."

"There is a lot that does not make sense to us," JPMorgan CFO Jeremy Barnum told analysts Friday.

David Hollerith is a senior reporter for Yahoo Finance covering banking and crypto.

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