Bank profits surged in 2021, but inflation comes to mind | WGN Radio 720

New York (AP) —Three of the country’s largest banks reported explosive profits in 2021 on Friday.

However, inflation has clouded the outlook for 2022, based on comments from bank executives to reporters and industry analysts. They anticipate higher inflation this year and face higher costs for compensation as banks compete for talent and employees. Wall Street will hear similar comments in the coming weeks as another company, the United States, announces its results and shares its outlook for next year.

“We spent a lot of time discussing inflation in 2021, and we’ll spend more in 2022,” said Mark Mason, Citigroup’s Chief Financial Officer, on a Friday call with journalists. I think. ”

JP Morgan reported a 14% decline in fourth-quarter revenue, a significant increase from $ 36.4 billion in 2019 before the pandemic, to nearly $ 50 billion for the full year 2021. Brought.

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

Wells Fargo’s full-year profit was $ 21.55 billion, slightly below past records, but better than a multiple a year ago. Wells’ operations continue to be constrained by the Federal Reserve, which limits banks from growing after sales practice issues and other scandals.

Both JP Morgan and Citi reported much higher costs last quarter than analysts expected. The two banks said it was partly because they had to hire new hires and pay them higher wages than they are currently looking for.

JP Morgan CFO Jeremy Burnham said in a phone call with reporters: “The labor market is tight and there is a bit of labor inflation. It’s important to attract and retain the best talent and make competitive payments. “. Burnham said banks expect this year to face “headwinds”, including rising wages, that could impact profitability.

Wells was able to manage expenses relatively well in the fourth quarter, but expects wage inflation to be hit this year.

Bank CFO Mike Santomasimo told investors, “We expect wage and benefits-related inflation to rise above normal levels by about $ 500 million in 2022.” ..

If inflation continues, one of the positives for banks is rising interest rates. The Federal Reserve has already told investors that the central bank is considering raising rates at least three times this year to curb inflation. Higher interest rates mean that banks can charge more loans to borrowers.

Bankers are worried that inflation can go out of control and the Fed must act more aggressively to curb it.

“The big concern is whether this inflation will turn into a spiral of wages and prices,” Mason told reporters. wage. It can lead to years of high inflation, the most notable example of which is the rampant inflation of the 1970s.

In a phone call with investors, JP Morgan CEO Jamie Dimon said that controlling inflation could require “6-7” rate hikes this year.

“Somehow it’s sweet and gentle, and this overall notion that no one will be surprised is wrong,” Dimon said.

Investors will get quarterly results next week from Bank of America, Goldman Sachs and Morgan Stanley. Investment banks (Goldman and Morgan) usually have some of the highest reward costs in the industry, so both banks will get a lot of attention.

Bloomberg News reported on Friday that Goldman will pay a one-time bonus to keep the highest-paying employees in the company.

Bank profits surged in 2021, but inflation comes to mind | WGN Radio 720

Source link Bank profits surged in 2021, but inflation comes to mind | WGN Radio 720

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