Large US banks reported increased first-quarter earnings Friday on higher interest rates and lower taxes, but cautioned that a trade war could stymie activity.
JPMorgan Chase, Citigroup and Wells Fargo all reported better-than-expected profits, although Wells Fargo said the results did not include costs connected to final resolution on a proposed $1 billion US regulatory fine that is still being negotiated.
Bank executives said business sentiment remained fairly strong amid positive conditions in major economies. But they acknowledged that the threat of a global trade war had moved into business conversation, even if the effects had so far been minimal.
"There is a lot of noise out there and I think that's having a somewhat dampening effect," said Citigroup Chief Financial Officer John Gerspach.
"It may delay things for a little bit, but I don't think it's having a significant impact."
"Obviously it is part of discussions," said JPMorgan Chief Financial Officer Marianne Lake. "At this point it's not having a material effect."
JPMorgan Chase said net income jumped in the first quarter to $8.7 billion, 35.1 percent higher than the year-ago period. Revenues increased 10.3 percent to $28.5 billion.
The biggest US bank by assets saw increases in all its major divisions due in large part to higher interest rates, which enabled JPMorgan to increase its profits from the spread between its deposits and loans.
At Citigroup, first-quarter earnings rose to $4.6 billion, up 13 percent from the year-ago period, while revenues were up 2.8 percent at $18.9 billion.
Citigroup pointed to broad growth in global consumer banking across regions.
Wells Fargo reported a 5.7 percent increase in first-quarter results to $5.5 billion. However, revenues fell 1.4 percent to $21.9 billion at the troubled institution.
Regulators from the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency have proposed $1 billion in penalties over investigations of automobile insurance and mortgage practices. But Wells Fargo said the results did not include an estimate because "we are unable to predict final resolution" of the matter.
The penalty is the latest regulatory problem to befall Wells Fargo, which also came under fire from investors and lawmakers over a fake account scandal. The Federal Reserve, in an unprecedented move, in February ordered the bank to halt its expansion until it improves governance, following "persistent misconduct."
"I'm confident that our outstanding team will continue to transform Wells Fargo into a better, stronger company," said chief executive Tim Sloan. "However, we recognize that it will take time to put all of our challenges behind us."
Results from all three banks were boosted by lower taxes, although bank executives expect a fuller payout from the overhaul with time.
JPMorgan's commercial banking business experienced flat lending despite positive corporate sentiment.
Lake expects lending to pick up as more businesses take action following US tax reform.
"As much as we're all eager, we have to recognize that tax reform is still in the early stages," Lake said in a conference call with reporters. "But optimism continues to be very high."
Citigroup, which reported higher corporate lending, also expects more of a pickup in activity later in the year due to the tax bill.
"The real benefits of tax reform are yet to be felt in the overall economy," Gerspach said.
"While there's a lot of planning going on, I don't think you're going to see a lot of action until the latter part of this quarter and certainly in the second half of the year."
Shares of all three banks fell in late-morning trading, with JPMorgan Chase dropping 2.6 percent at $110.44, Citigroup losing 2.9 percent to $70.07 and Wells Fargo tumbling 3.1 percent to $51.05.
"These stocks have been rallying before the earnings because we expected them to be good," said Tom Cahill, portfolio strategist at Ventura Wealth Management.
“Those numbers had to be extraordinary to continue the rally but they were not."