Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Wall Street banks' profits slide as economic clouds loom, some beat forecasts

Economy Oct 15, 2022 06:21AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. Signage is seen at the JPMorgan Chase & Co. New York Head Quarters in Manhattan, New York City, U.S., June 30, 2022. REUTERS/Andrew Kelly 2/2
 
JPM
-0.47%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
WFC
-0.36%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MS
-0.75%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
C
-1.05%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Saeed Azhar, Noor Zainab Hussain and Niket Nishant

(Reuters) -Profits slid at Wall Street's biggest banks in the third quarter as they braced for a weaker economy while investment banking was hit hard, but investors saw a silver lining with some banks beating estimates.

JPMorgan Chase & Co (NYSE:JPM), Morgan Stanley (NYSE:MS), Citigroup Inc (NYSE:C) and Wells Fargo (NYSE:WFC) & Co's showed a slide in net income after turbulent markets choked off investment banking activity and lenders set aside more rainy-day funds to cover losses from borrowers who fall behind on payments.

"We're in an environment where it's kind of odd," said JPMorgan Chief Executive Officer Jamie Dimon, who said that while the bank was "hoping for the best, we always remain vigilant and are prepared for bad outcomes."

Central banks globally have been battling surging inflation which is expected to cause an economic slowdown. The Federal Reserve has raised the benchmark interest rate from near zero in March to the current range of 3.00% to 3.25% and signaled more increases.

Rising rates tend to buoy bank profits, but the broader risk of an economic downturn sparked by high inflation, supply-chain bottlenecks and the war in Ukraine could weigh on future earnings.

On a conference call, Dimon said U.S. consumers remained strong and he wasn't predicting a recession but "there are a lot of headwinds out there."

Money that people have in their checking accounts will "deplete probably by sometime midyear next year" while they are contending with headwinds like inflation, higher rates and higher mortgage rates, he cautioned.

Banks set aside more money in preparation for a hit from a potential economic slowdown. JPMorgan set aside $808 million in reserves, Citi added $370 million to reserves and Wells had a $385 million increase in the allowance for credit losses.

Still, shares of JPMorgan and Wells Fargo gained strongly, up 2.5% and 3.7% respectively while Citi gained 1.2% as the profit falls were not as deep as feared.

JPM also said it hopes to be able to resume stock buybacks early next year, although other banks were less bullish with Citi saying buybacks continue to be on hold and Wells Fargo saying it continues to be prudent about buybacks.

"JPMorgan delivered a solid set of results, from top to bottom," Susan Roth Katzke, an analyst at Credit Suisse, wrote in a note. "At least equally as important is the evidence of preparedness to manage through whatever turn the macro takes; expect the latter to be in focus."

JPMorgan reported a 17% drop in third-quarter profit to $9.74 billion, although that was less than had been feared. Wells Fargo posted a 31% decline to $3.53 billion but it also beat expectations. And Citi reported a 25% drop to $3.5 billion which also beat expectations.

"Most of these banks are making more spread income now than ever because of the change in interest rates," said Chris Marinac, Director of Research at Janney Montgomery Scott. "And this was the first quarter where you had the full effect of the Fed, because the Fed increased a little bit in May."

JPMorgan said net interest income rose 34% to a record $17.6 billion, up 34%.

"Generally banks obviously seem to be benefiting from a higher rate environment, and we've obviously seen banks able to earn, in terms of revenues, on higher interest rates," said Eric Theoret, global macro strategist at Manulife Investment Management.

Marinac said investors would want to see banks build reserves at this point in the economic cycle.

"They're bracing for a hard landing, because they're building the reserves," said Marinac. "But that's not necessarily a bad thing."

While a number of the banks managed to beat expectations, Morgan Stanley reported a 30% slump in profit to $2.49 billion which missed estimates. Its shares fell 5%.

Morgan Stanley's earnings showed that investment banking revenue more than halved to $1.3 billion with declines across the bank's advisory, equity and fixed income segments.

James Gorman, Chairman and Chief Executive Officer of Morgan Stanley, said his firm's performance was "resilient and balanced in an uncertain and difficult environment."

Corporations' interest in mergers, acquisitions and initial public offerings dried up, particularly hitting banks strong in investment banking. Global M&A lost ground in the third quarter with volumes in the United States plummeting nearly 63% as the rising cost of debt forced companies to postpone big buyouts.

While banks were optimistic they could weather the likely tougher economy ahead, some observers were concerned about the long term outlook for growth.

“Against the backdrop of economic headwinds, the solid earnings reports from this morning will quickly pass into the rearview mirror," said Peter Torrente, KPMG US National Sector Leader for Banking and Capital Markets. "Worries of inflation, which shows little sign of slowing down, are casting a long shadow on future outlook."

Torrente said while banks' revenues reflect the benefit of rising interest rates and persisting loan demand, the buildup in loan loss provisions also reflects the uncertainty in the road ahead.

"Next quarter and beyond, credit risk, loan growth, and deposit balances will be key areas to monitor in the banking industry," Torrente said.

 

Wall Street banks' profits slide as economic clouds loom, some beat forecasts
 

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 (1)
bella Mike
bella Mike Oct 14, 2022 10:24PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I guess you are tired of following bad forex signal providers, which is exactly why you should join our team. Invest now, you will be glad you did, this is a legit account manager I know and found trust in him, I started my investment with a minimum starting capital of $650, now I earn weekly with him help, send him a message directly on IℕSTAGℝAM . DONALD MURPHY fxTℝADET
 
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