The British boss of Citigroup has warned that the US will fall into recession later this year amid a turbulent outlook for the financial sector.
Jane Fraser, chief executive of the Wall Street giant, told investors that the US will enter into a shallow recession after JP Morgan forecast “storm clouds” gathering in the wake of the recent banking crisis.
Jamie Dimon, chief executive of JP Morgan, issued the warning even as the lender was boosted by depositors pulling funds from smaller rivals.
He said: “The storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks.”
It came after the failure of Silicon Valley Bank (SVB) and the emergency rescue of Credit Suisse last month sent shockwaves through the global banking industry.
However, first quarter results reported by JP Morgan on Friday showed that the bank benefited from the crisis, with deposits jumping by $37bn (£29.7bn) during the period amid a flight to safety.
The unexpected rise in deposits, coupled with a strong performance in its consumer division, boosted JP Morgan’s profits by more than 50pc in the first quarter to $12.6bn.
Analysts at Oppenheimer said that JPMorgan “solidly trounced” its own guidance and investor expectations in the first quarter. Shares jumped by nearly 7pc in early trading in New York.
The sharp rise in deposits at the bank suggests that customers have flocked to JPMorgan amid concerns about the health of smaller regional banks in the US following SVB’s failure.
A number of regional lenders struggled to arrest a wave of customer withdrawals, forcing US authorities to intervene amid fears of contagion. Several Wall Street giants, including JP Morgan, also provided a $30bn lifeline to prop up California’s First Republic.
In his annual letter to investors earlier this month, Mr Dimon said: “While it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd.”
Citigroup also earned more from borrowers paying higher interest on loans, as net income rose 7pc to $4.6bn for the three months to March 31, it reported on Friday.
The warnings come days after Andrew Bailey, the Governor of the Bank of England, played down the risks of a system-wide banking crisis.
Speaking in Washington earlier this week, Mr Bailey said issues had arisen in a “few parts” of the banking industry following the “necessary sharp tightening in monetary policy to bring down inflation from levels that are much too high”.
He added: “The post-crisis reforms to bank regulation have worked. Today I do not believe we face a systemic banking crisis. When I look at the UK banks, they are well capitalised, 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 around how fast inflation will fall.
She said: “We expect euro area inflation to continue to fall, as lagged price pressures fade out and tighter monetary policy increasingly dampens demand. However, historically high wage growth, related to tight labour markets and compensation for high inflation, will support core inflation over the projection horizon, as it gradually returns to rates around our target.
Meanwhile, BlackRock, the world’s largest asset manager, said it was on the hunt for a “transformational” deal amid turbulence in the banking sector.
Larry Fink, chief executive of BlackRock, said: “If there is an opportunity to do something transformational, we are going to be prepared to do it. How can we double down on what we’re doing with… technology. How can we build out our footprint globally at this time?”
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