Big Banks Earnings Wrap: Investment banking rebounds, but interest rates are a double-edged sword

🏦 Main Street POV… JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo topped Q1 expectations, but interest income isn’t what it used to be: Chase (the world's biggest bank) had its worst one-day stock drop in nearly four years after falling short on net interest income (what it earns from interest on loans and deposits, minus what it pays out for savings accounts). Wells Fargo’s net interest income fell 8% for the quarter, and BoA’s revenue fell as interest income dipped. America’s largest banks lent billions of $$ less in Q1. Banks have raised yields on savings accounts to compete for customers, and it’s starting to eat into profits.

🏦 Wall Street POV — Morgan Stanley and Goldman Sachs also beat estimates as investment banking made a big comeback. Goldman’s investment banking fees surged 32% to $2.1B — the strongest quarter for the category in two years. Morgan Stanley, JPMorgan, and Citi also notched double-digit growth for their i-banking divisions. Morgan Stanley’s wealth-management biz (which makes up nearly half its revenue) jumped 5%. Strong earnings and a market rally have ignited more dealmaking: global M&A volumes climbed 30% to about $755B in the first quarter.

➡️ Future POV: Banks had benefited from rising interest rates, which allowed them to earn more on loans to customers (think: mortgages, credit cards). But now that Fed rates seem to be on a “higher for longer” path, it’s become a double-edged sword. Late last year, US banks were sitting on $684B in unrealized losses as high rates and rising bond yields plunged the value of their older bonds. While an IPO revival could keep Wall Street’s dealmaking revenue hot, JPMorgan’s CEO said geopolitical tensions and stubborn inflation create “significant uncertain forces.”