Citi analyst on US banks profits, margins outlook as Fed pause

U.S. banks have delivered a mixed bag of first-quarter financial results so far — but that’s probably the sector’s best this year, especially if the Federal Reserve does not increase interest rates at all, according to a Citi analyst.

Four of the six largest American banks have released their first-quarter financial results over the past week. Among them, J.P. Morgan and Wells Fargo reported quarterly profit and revenue that exceeded analysts’ expectations, while Goldman Sachs and Citigroup both missed estimates on their revenue.

Morgan Stanley and Bank of America are scheduled to report earnings this week.

With the Fed already signalling that it did not expect to hike interest rates this year, the banking industry’s ability to generate higher profits in the coming months may be limited, said Ronit Ghose, the global head of banks research at Citi.

“When we look at profitability, particularly net interest margins … we think we’re at peak margins right now, we think this is as good as it gets both in terms of net interest margins and profitability,” he told CNBC’s “Capital Connection” on Tuesday.

Net interest margin is a widely watched indicator that measures a bank’s lending profitability. The potential absence of further interest rates increases by the Fed means that banks may not be able to charge more on loans in the coming months.

“If we don’t see more rate raises, which is likely … that’s not great news for margins going ahead,” said Ghose.

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