Major U.S. banks reported steady earnings on Friday on the back of still-high interest rates, while offering mixed views on whether the United States can avoid a near-term recession.
JPMorgan Chase reported higher earnings, citing increased asset management and investment banking fees as well as a lift from high interest rates, while Citigroup and Wells Fargo reported profit declines due to higher costs.
Compared to a year ago, banks have seen some increase in bad loan write-offs, reflecting the weaker profile of low-income consumers. But bankers still point to a healthy US labor market and a lingering boost from pandemic-era government spending.
Officials such as Federal Reserve Chairman Jerome Powell have pointed to the possibility that the US economy could achieve a “soft landing” — shifting relatively painlessly from a period of high growth and high inflation to one of slower growth while avoiding a recession.
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While allowing that “many economic indicators continue to be favorable,” JPMorgan chief executive Jamie Dimon highlighted risks to the outlook, including geopolitical instability and the potential persistence of inflation.
“The market is probably very happy,” Dimon said on a conference call with reporters. “I think the potential for bad outcomes is greater than other people think.”
Dimon’s comments echoed his tone in a shareholder letter this week, in which he warned that interest rates could rise even further. He emphasized that he is not predicting this but merely pointing it out as a possibility.
On Friday, Citigroup Chief Financial Officer Mark Mason offered a somewhat more optimistic assessment.
While noting that “there’s a lot of risk out there,” Mason characterized the global economy as generally “resilient,” with consumers mostly healthy and inflation “moving in the direction central banks want.”
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Mason sees a “soft landing” in the United States as “increasingly likely” and says Europe looks poised for moderate growth after a period of stagnation.
The main concern, along with geopolitical risk, “is still around inflation” and the question of when and by how much interest rates will be cut, Mason said on a conference call with reporters.
Job cuts
At JPMorgan, profits came in at $13.4 billion, up six percent from the year-ago period, boosted by higher net interest income (NII) — the benefit of charging more for loans minus the higher interest that are paid to depositors.
Revenue rose nine percent to $41.9 billion.
Markets were a weak point, with trading revenues falling for fixed income and flat for equities.
While JPMorgan raised its full-year NII estimate by $1 billion, to $89 billion, the bank said it expected the boost from higher interest rates to earnings to erode or “normalize” over time.
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At Citi, profit was $3.4 billion, down 27 percent from the year-ago period, in part because revenue fell two percent to $21.1 billion.
While results were boosted by higher NII, this was offset by the impact of higher credit losses.
Another drag came from $110 million in severance costs. By the end of the quarter, Citi had cut 7,000 of the 20,000 jobs it had targeted in a global reorganization, Mason said.
Wells Fargo reported earnings of $4.6 billion, down 7% from the year-ago period. Revenue rose one percent to $20.9 billion.
Unlike the other two banks, Wells Fargo had an eight percent drop in NII, which it attributed to consumers shifting to higher-interest products.
However, the bank cited higher investment banking fees as a strong point and said it cut provisions for commercial real estate and auto loans — two areas that have seen erosion in credit quality in recent quarters.
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JPMorgan shares fell 4.5%, while Citi gained 0.1% and Wells Fargo 0.3%.
Source: AFP