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JPMorgan, Wells Fargo income outlooks diverge

JPMorgan’s above-forecast results defused concerns about its weak markets business

Investors rewarded the largest U.S. bank by assets with a share rise of as much as 4.6% after it squeezed out record net interest income of $14.5bn. Tightened focus on loans helped lending advance 4% on the year.

The bank was not entirely immune to ‘regime change’ in rates though. Its net interest margin rose only 2 basis points, the slowest in two quarters, a sign that the weakening rates environment is beginning to bite. JPM also set aside $90m as provisions linked to the deteriorating credit quality of some business loans.

JPM’s reiterated $58bn in interest income outlook for 2019 should still reassure investors that it’s adequately defended against rates policy, whilst CFO Marianne Lake signalled that the bank aims to rely on efficiency and scale to maintain performance: “You could argue a patient Fed and lower rates for longer may elongate the cycle.” As rivals’ performance moderates, JPM stock should extend a rise for the year that last stood near 14%

The contrast with Wells Fargo which also reported on Friday was stark. Still under a cloud from an accounting scandal that has now seen off two CEOs, Wells Q1 figures were firm. Aggressive cost cutting enabled net income to leap 16.5% to $5.51bn, or $1.20 a share. Wall St expected $1.09. But the banks remains constrained by the Fed’s continued ban on asset growth, with no timeline as to when the embargo will be lifted. As such, the pause in rates could hit Wells harder than competitors, prompting the bank to cut its net interest income (NII) outlook. It now sees a fall of 2.5%-5% having previously forecast a 2.5%-5% rise.

Suspension of 2020 cost targets after the recent departure of CEO Tim Sloan is another worry, though Wells is on track to hit 2019 expense goals. Continued underperformance of WFC stock relative to rivals could be the line of least resistance.

Normalised share price chart – the big 6 U.S. banks – year to date

Source: Refinitiv/City Index

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