The British boss of Citigroup has warned that the United States will fall into recession later this year amid turmoil for the financial sector.
Jane Fraser, chief executive of the Wall Street giant, told investors that the United States would enter a shallow recession after JP Morgan predicted “storm clouds” would gather following the recent banking crisis.
Jamie Dimon, chief executive of JP Morgan, issued the warning even as the lender was boosted by depositors withdrawing funds from smaller rivals.
He said: “The storm clouds we’ve been watching for a year remain on the horizon, and turbulence in the banking sector adds to these risks.”
It came after the failure of Silicon Valley Bank (SVB) and the emergency bailout of Credit Suisse last month sent shockwaves through the global banking sector.
However, first-quarter results released by JP Morgan on Friday showed the bank profited from the crisis, with deposits jumping by $37bn (£29.7bn) in the mid-to-late period. a flight to safety.
The unexpected rise in deposits, coupled with a strong performance from its consumer division, pushed JP Morgan’s first-quarter profits up more than 50% to $12.6 billion.
Oppenheimer analysts said JPMorgan “solidly beat” its own guidance and investors’ expectations in the first quarter. Shares jumped nearly 7% in early trading in New York.
The sharp rise in deposits at the bank suggests customers have flocked to JPMorgan amid concerns about the health of smaller regional banks in the United States following the failure of SVB.
A number of regional lenders have struggled to stem a wave of customer withdrawals, forcing US authorities to intervene amid contagion fears. Several Wall Street giants, including JP Morgan, also provided a $30 billion lifeline to support the California First Republic.
In his annual letter to investors earlier this month, Mr Dimon said: “While this banking crisis has ‘benefited’ the big banks because of the influx of deposits they have received from institutions smaller, the idea that this collapse was good for them in any way is absurd.
Citigroup also earned more from borrowers paying higher interest on loans, as net income rose 7% to $4.6 billion for the three months ending March 31, it reported Friday.
The warnings come days after Andrew Bailey, the Governor of the Bank of England, downplayed the risks of a system-wide banking crisis.
Speaking in Washington earlier this week, Mr Bailey said problems had arisen in “a few parts” of the banking sector following the “strict monetary policy tightening needed to bring inflation down to much higher levels.” too high”.
He added: “Post-crisis banking regulatory reforms have worked. Today, I do not believe that we are faced with a systemic banking crisis. When I look at UK banks, they are well capitalized, liquid and able to serve their customers and support the economy.
Separately, Christine Lagarde, President of the European Central Bank (ECB), warned on Friday that there remains considerable uncertainty about the speed at which inflation will decline.
She said: “We expect inflation in the euro area to continue to decline, as lagging price pressures wane and monetary policy tightening increasingly dampens demand. However , historically high wage growth, linked to tight labor markets and the offset of high inflation, will support core inflation over the projection horizon, as it gradually returns to rates close to our target.
Meanwhile, BlackRock, the world’s largest asset manager, said it was seeking a “transformational” deal amid turmoil in the banking sector.
Larry Fink, CEO of BlackRock, said, “If there’s an opportunity to do something transformational, we’re going to be ready to do it. How can we double what we do with… technology. How can we grow our global footprint right now? »
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