Net interest income potential headwinds ahead
- 4Q23 net profit fell short of consensus
- Higher charge-offs and modest reserve release as macroeconomic outlook improved
- Management expresses optimism on the US economic outlook, emphasizing the resiliency in consumer spending
4Q23 net profit fell short of consensus. Total revenue of US$22bn declined 10% y-o-y/13% q-o-q, missing consensus. Net interest income (NII) of US$13.9bn (-5% y-o-y/-3% q-o-q) on higher deposit costs and lower deposit balances, non-interest income of US$8bn (-19% y-o-y/-26% q-o-q) on lower market making and similar activities, which was partially offset by a higher asset management and investment banking fees. Net profit of US$3.1bn fell 56% y-o-y/60% q-o-q due to one-off Federal Deposit Insurance Corporation (FDIC) charges and earnings per share of 35 USCts, falling short of the consensus estimates of 53 USCts. During 4Q23, total credit costs of US$1.1bn was higher y-o-y/ lower q-o-q due to higher net charge-off of US$1.2bn driven primarily by credit card and commercial real estate office as well as a US$0.1bn reserve release as the macroeconomic outlook improved. CET1 ratio decreased 9bps q-o-q to 11.8% with ROE excluding FDIC special assessment and BSBY cessation impact at 8.6%. During the quarter, loan book was modestly higher y-o-y/q-o-q at US$1.1T while deposits declined 1% yoy/grew 2% q-o-q to US$1.9T.
Management expresses optimism on the US economic outlook, emphasizing the resilience in consumer spending. Management anticipates NII to decrease by US$100m to US$200m in 1Q24 and may experience a further dip in 2Q24 before resuming sequential growth in 2H24. Additionally, management expects to see low to mid single-digit loan growth and moderate deposit growth in 2H24. An approximate increase of US$16.4 billion in expenses during the 1Q24 is expected, primarily driven by seasonal factors, payroll tax expenses, and higher revenue costs.