Some of the largest US banks saw profits boosted by higher interest rates and cited early signs of a recovery in investment banking, but warned the economy was slowing and commercial real estate losses would widen.
In their Friday earnings, JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) reported sharp rises in net interest income, which measures the difference between what banks make on loans and what they pay out on deposits, which led to higher profits.
Citigroup (NYSE:C), meanwhile, said its second-quarter profit fell 36% as weakness in the bank’s trading business hurt profits from its retail banking and wealth management businesses.
JPM shares rose 2.8%, Wells rose 4%, while Citi shares rose 1%.
US consumers still have healthy balance sheets, banks said, but warned spending was slowing and there had been a slight deterioration in some consumer debt.
“The US economy remains resilient,” said JPMorgan CEO Jamie Dimon. However, he added that consumers are “slowly depleting their cash reserves.”
In a conference call, Jeremy Barnum, chief financial officer of the largest US bank, said demand for loan growth outside of the card and auto segments was muted. The CFO added that the bank is seeing “green shoots” in commercial and investment banking, but it’s too early to call a trend.
Amid the Federal Reserve’s aggressive rate hikes and high inflation, concerns about the health of the US economy are growing. Investors fear that high interest rates could plunge the economy into recession, but the outlook remains uncertain.
Wells CEO Charlie Scharf said the range of economic scenarios is likely to narrow over the next few quarters. The economy is currently performing better than many expected, but is likely to continue to slow.
Wells Fargo said consumer depreciation, i.e.
Wells also reported that loan loss provisions included a $949 million increase in allowance primarily for potential losses on commercial real estate office (CRE) loans and higher credit card loan balances.
“While we have not experienced any significant losses in our office portfolio to date, we are bracing ourselves for the weakness that we believe will manifest in this market over time,” said Scharf.
Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) are set to report earnings on July 18th, followed by Goldman Sachs (NYSE:GS) on July 19th.
Source: Reuters
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