Bank profits soared in 2021, but inflation is front of mind

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The country’s three largest banks on Friday reported profit-booking for 2021, helping the economy recover and easing spending and borrowing from consumers and businesses.

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NEW YORK – The nation’s three largest banks reported profit-booking for 2021 on Friday, helping the economy recover and helping consumers and businesses spend and borrow.

But based on comments from bank officials to journalists and industry analysts, inflation is clouding the outlook for 2022. They anticipate higher inflation this year and face higher costs for compensation as banks compete for talent and staff. Wall Street may hear similar comments over the next few weeks as the rest of Corporate America releases results and shares its outlook for the upcoming year.

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“We spent a good deal of 2021 talking about inflation and I suspect we’re going to spend even more time in 2022,” Citigroup Chief Financial Officer Mark Mason said in a call with reporters on Friday. “

While JPMorgan reported a 14% decline in fourth-quarter earnings, the bank still brought in nearly $50 billion in profit for the full year 2021, up from a $36.4 billion profit in 2019 before the pandemic hit was much more.

Citi brought in $21.95 billion last year. This is higher than Citigroup in 2006, when the bank earned $21.2 billion at the height of the mortgage bubble, and when Citigroup was a financial conglomerate that was much larger than it is today.

Wells Fargo’s full-year profit was $21.55 billion, slightly lower than the previous record, but several times better than a year ago. Wells’ operations continue to be halted by the Federal Reserve, which prevented the bank from growing as big after problems with its sales practices and other scandals.

JPMorgan and Citi both reported higher expenses last quarter, which far exceeded analysts’ expectations. Both the banks said this was partly due to the need to recruit new employees and pay them the higher salary they were now demanding.

“Labor markets are tight, labor inflation is slight, and it’s important for us to attract and retain the best talent and get paid competitively,” JPMorgan CFO Jeremy Barnum told reporters. Barnum said he expects the bank to face “headwinds” this year, including higher salaries, which could impact its profitability.

Wells was able to keep expenses relatively managed in the fourth quarter, but wage inflation is also expected to take a hit this year.

“We expect wage and benefits-related inflation to increase by approximately $500 million in 2022 to exceed normal levels of qualifying and wage increases,” the bank’s CFO Mike Santomasimo told investors.

One positive for banks is an increase in interest rates if inflation continues. The Federal Reserve has already telegraphed investors that the central bank is considering at least three interest rate hikes this year to keep inflation under check. Higher interest rates mean that banks can charge borrowers more for loans.

Bankers worry that inflation could spiral out of control and that the Fed will have to act more aggressively to control it.

“The big concern is whether this inflation turns into a wage-price spiral,” Mason told reporters, referring to the economic phenomenon where workers demand higher wages to cover their rising cost of living. , which causes companies to raise prices on goods. the wages. This can lead to years of high inflation, the most notable example of which is large-scale inflation in the 1970s.

JP Morgan CEO Jamie Dimon told investors that rates could be hiked six or seven times this year to keep inflation under control.

“This whole notion that somehow it’s going to be sweet and tender and no one will ever be surprised is (a) mistake,” Dimon said.

Investors will get quarterly results from Bank of America, Goldman Sachs and Morgan Stanley next week. There will be significant focus on investment banks – Goldman and Morgan – as both banks typically have the highest compensation costs in the industry.

Businesshala News reported Friday that Goldman plans to offer one-time bonuses to its highest-paid employees to keep them at the firm.

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