July 14, 2017 / 3:17 PM / 2 years ago

WRAPUP 2-Loan growth, better spreads fail to impress U.S. bank investors

(Adds Breakingviews column link)

By David Henry and Dan Freed

NEW YORK, July 14 (Reuters) - U.S. banks are starting to see some long-awaited benefits of higher interest rates, with four of the largest lenders beating analysts’ quarterly profit expectations on Friday by raising loan prices without paying much more for deposits.

But shares of JPMorgan Chase & Co, Wells Fargo & Co , Citigroup Inc and PNC Financial Services Group Inc were down in early trading. Investors had wanted to see even better results and hear a sunnier outlook from executives, analysts said. See Breakingviews column, Factbox:

JPMorgan, for instance, reported loan growth, deposit growth and higher net interest income, which measures the difference between its cost of funding and the revenue it generates from those funds. Overall, its earnings rose 13 percent.

However, management now expects net interest income to rise by $4 billion this year, down from a previous outlook of $4.5 billion, due to a combination of mortgage adjustments, weakness in markets-related income, and unexpected “downward pressure” on 10-year bonds.

As JPMorgan’s stock dropped 1.2 percent to $92.03, Citigroup bank stock analyst Keith Horowitz said investors were disappointed by the gloomier outlook, and had “a high bar priced into the stock.”

The Federal Reserve has raised rates three times since the second quarter of last year, with the latest increase coming in June. Rising rates are generally good for banks, but because there have been uneven movements in short- and long-term rates, lenders have not seen income grow as quickly as investors expected.

Wells Fargo, Citigroup and PNC each reported year-over-year increases in their loan books. Wells and PNC said the spread between what they pay for deposits and charge for loans had grown, thanks to higher rates. They all beat analysts’ average estimates for earnings per share.

But Wells Fargo’s revenue came in shy of expectations, and Chief Financial Officer John Shrewsberry said he expects litigation costs to rise by up to $1.3 billion due to “a variety of matters,” including regulatory probes into its residential business.

Oppenheimer analyst Chris Kotowski called the results “lackluster,” pointing to flat revenue and higher expenses despite the earnings beat. Shares of the San Francisco-based bank were down 1.8 percent at $54.62 in morning trading.

Reporting by David Henry and Dan Freed; Additional Reporting by Olivia Oran; Writing by Lauren Tara LaCapra; Editing by Bernard Orr

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