Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

U.S. banks point to resilient but slowing economy, flag risks ahead

Published Jul 14, 2023 09:29AM ET Updated Jul 14, 2023 09:01PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
3/3 © Reuters. FILE PHOTO: A woman walks past Wells Fargo bank in New York City, U.S., March 17, 2020. REUTERS/Jeenah Moon/File Photo 2/3
 
BLK
+0.10%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MS
+1.13%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
WFC
+0.81%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
STT
+1.53%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
+0.44%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GS
+0.39%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Noor Zainab Hussain, Tatiana Bautzer and Saeed Azhar

(Reuters) -Some of the largest U.S. banks said on Friday they got a profit boost from higher rates and painted a picture of a resilient economy, with sparks of hope in some businesses like deal-making that have been in the dumps of late.

But they also warned of risks ahead, with U.S. consumers pulling back on spending and losses building up in areas such as credit cards and office commercial real estate.

Investors brushed aside their initial enthusiasm for results from JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C), fearing things were as good as they would get for a while.

"We're in a very unusual environment - higher inflation, these rate levels and a strong labor market," Citigroup CEO Jane Fraser said. But she added, "I don't think we should be overly concerned here about the health of the U.S. consumer."

JPMorgan Chase and Wells Fargo reported sharp increases in net interest income, which measures the difference between what banks earn on loans and pay out on deposits, that drove up profits.

For Citigroup, however, weakness in its trading business overshadowed gains in interest income. That's a headwind that other banks more dependent on Wall Street businesses, such as Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), are also likely to face when they report results next week.

Separately, BlackRock (NYSE:BLK), the world's biggest asset manager, handily beat second-quarter profit estimates but showed a slowdown in money inflows.

U.S. custodian bank State Street Corp (NYSE:STT) beat profit estimates for the second quarter after interest income climbed 18% year-on-year, though it fell on a quarterly basis by 10% due to lower average non-interest bearing deposit balances.

State Street warned of a further decline of 12-18% on net interest income on a sequential basis on its earnings call, driven by lower deposit levels. Deposits at large banks have been dropping as consumers move money in search of higher yields.

State Street shares closed down 12%, while JPM's shares rose 0.6%. Wells shares were down 0.3%, while Citi fell 4% and BlackRock fell 1.5%.

"If interest rates rise, loan demand could continue to deteriorate," said Brian Mulberry, client portfolio manager at Zacks Investment Management.

The bank results provide the latest insights into the health of the U.S. economy. Investors have been worried that an aggressive rate hike campaign by the U.S. Federal Reserve to fight inflation will tip the economy into recession but the outlook remains highly uncertain.

"The U.S. economy continues to be resilient," JPMorgan Chief Executive Jamie Dimon said. But he added that consumers are "slowly using up their cash buffers."

CONSUMER WORRIES

Some bank executives said U.S. consumers, who are the key drivers of the economy, still have healthy finances but warned spending was slowing and there had been a modest deterioration in some consumer debt.

Weekly data from the Federal Reserve has shown consumer borrowing slowing. Bank credit card lending saw its growth rate peak in October 2022 after two years of strong increases and has moderated since. The main drag on consumer lending is auto loans. Annual growth peaked there in early 2022 and turned negative in April.

Wells Fargo said consumer charge-offs, meaning debts that a bank has written off and does not expect to recover, continued to modestly deteriorate. Citi flagged that delinquency rates in credit cards and other retail lines are rising and expected to reach "normal levels" by the end of the year.

Wells CEO Charlie Scharf said the range of scenarios for the economy should narrow over the next few quarters. For now, the economy is performing better than many expected but will likely continue slowing.

Larry Fink, BlackRock's chief executive, said in an interview with CNBC he expects the economic environment to remain challenging. "Inflation will be stickier than market is assuming," he said, adding it will bounce around 2% and 4%.

Meanwhile, deposit levels have fallen for big banks for more than a year, and the annual growth rate turned negative last October and hit negative 6% in April, the steepest drop ever.

JPMorgan said it expects a modest downward trend in deposits.

RISKS AHEAD

Investment banking and trading businesses, a drag on earnings in recent quarters, did so again. Some executives held out hope, saying they had seen early signs of recovery in parts of those businesses but shied away from calling it a turning point.

JPMorgan's Barnum said the bank was seeing "green shoots" in trading and investment banking but it was too early to call a trend.

Both JPMorgan and Wells Fargo also set aside more money for expected losses from commercial real estate loans, in the latest sign that stress is building up in the sector.

Wells reported that provision for credit losses included a $949 million increase in the allowance, mainly for potential losses in commercial real estate (CRE) office loans, as well as for higher credit card loan balances.

"While we haven’t seen significant losses in our office portfolio to-date, we are reserving for the weakness that we expect to play out in that market over time," Scharf said.

The three banks kicked off earnings season. Bank of America (NYSE:BAC) and Morgan Stanley will announce their results on July 18, followed by Goldman Sachs on July 19.

U.S. banks point to resilient but slowing economy, flag risks ahead
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Derick Lim
Derick Lim Jul 16, 2023 11:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Another bank crisis in the making?
Jonas
Jonas Jul 16, 2023 4:29AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
CPI (YoY) in July came in at 3.0%… Why is this talked about as if inflation is dissapearing and easing off? Am i wrong to think that it has actually
Otis Grant
Otis Grant Jul 14, 2023 9:45AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ya they been warning about the economy for 5 quarters now
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email