Banks say 2023 was the peak after $250 billion interest haul

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(Bloomberg) --On Friday morning, leaders at some of Wall Street's biggest banks took turns calling an end to the record run for their biggest source of revenue. 

Wells Fargo surprised analysts by predicting a 9% drop in net interest income for 2024, while Citigroup forecast a modest drop this year. Even JPMorgan Chase, which sees its 2024 haul holding up at 2023 levels, predicts it will drop off over the course of the year. 

For all the pain the Federal Reserve's rapid rate hikes caused for many regional lenders, it was a boon for the biggest banks. In 2023, the four giants raked in $253 billion in NII — the difference between what it earns on its assets and what it pays on its debts — about $80 billion higher than 2021's total. Now, most banks see rate cuts coming, all while they have to pay more on deposits or risk losing customer savings to higher-yielding options. 

"There are a number of factors that can impact our results, including the ultimate path of rates, the shape of the yield curve, quantitative tightening and fiscal deficits, consumer behavior and competitive behavior, to name just a few," Wells Fargo Chief Financial Officer Mike Santomassimo said. "All of which we have little to no control over."

U.S. banks rallied late last year after months of turmoil, as investors snapped up shares amid hopes that the Federal Reserve was done raising interest rates. Such a pivot could in theory ease concerns over deposit costs and credit quality, while prompting consumers and companies to up their borrowing. But with the pace and extent of rate hikes still uncertain, such benefits could take a while to trickle through while inflation continues to bite and geopolitical tensions rise, all keeping banks cautious on the year ahead.   

Bank of America didn't provide an NII forecast in its earnings statement. The year was characterized by "slow and strong net interest income," Chief Financial Officer Alastair Borthwick said on a call with media. The revenue source has come down based on deposit pricing, he said. Overall, Bank of America's deposits have grown, up to $1.9 trillion, while loan demand is expected to rise in the low single digits this year, Borthwick said.

JPMorgan notched a seventh straight NII record last quarter, helped by its acquisition of First Republic. Still, Chief Executive Officer Jamie Dimon said the haul reflected "over-earning" on both NII and credit, a sign he expects such numbers probably won't last. 

And in a presentation, the biggest US bank said its 2024 NII outlook assumes six rate cuts as well as deposit repricing and migration that will together shave $8 billion off its annualized fourth-quarter figure. Loan growth, particularly in the bank's credit card business, may offset $1.5 billion of that drop, it said. It also anticipates deposits to be slightly down. 

"It's important to note that we just reported a quarterly NII ex-markets run rate of $94 billion," the bank's Chief Financial Officer Jeremy Barnum said. The outlook for 2024 "implies meaningful, sequential, quarterly declines" this year, he said.

Citigroup had already hit its peak in the second quarter, while the top figure for BofA and Wells Fargo came in the fourth quarter of 2022. Citigroup — which said it is eliminating 20,000 jobs as part of its broader global overhaul — reported $47.6 billion of NII last year, excluding its markets business, which it said will be down modestly this year as rates decline and it sees some deposit growth. Jane Fraser's bank also said credit card losses reached pre-pandemic levels for the first time in the fourth quarter, in a sign that consumers are starting to fall behind on their bills.

Wells Fargo expects NII for this year to be about 7% to 9% lower than the $52.4 billion it generated last year, citing a slight decline in average loans, attrition in consumer banking and lending deposits and lower rates. 

Wells Fargo CEO Charlie Scharf highlighted the uncertainty of that guidance: "Please recognize that it is based upon a series of market assumptions which may be right or may be wrong."