Credit Where Credit Is Due

On Monday, Citigroup announced earnings down 11%. Part of that was due to high interest rates:

The performance of Citigroup’s global consumer businesses was more disappointing, dragged down by weaker credit quality and a tough interest rate environment. Profit in its United States consumer division fell 12 percent, to 1.77 billion, in the first quarter with every major business posting declines.

Today, JP Morgan annouced earnings up 55%. Part of that was due to low interest rates:

Chairman and Chief Executive Jamie Dimon said in a statement that the results were helped by record earnings at J.P. Morgan's investment-bank, asset-management and commercial-banking operations. He added private-equity gains "were also very strong," and that the company saw "some benefit from the generally favorable credit environment, which we do not expect to continue indefinitely."

Who to believe, here? In a word, Dimon. Without detracting anything from his very impressive results, rates are low and credit is easy. It's true that commercial banks, which borrow short (by taking deposits) and lend long, do have a hard time when the yield curve is flat or inverted, as it is now. But the problems facing Citi CEO Chuck Prince are much bigger than the shape of the yield curve.