[1/3]A woman walks past Wells Fargo Bank in New York City, the United States, March 17, 2020. REUTERS/Jeenah Moon/File Photo
July 14 (Reuters) – Some of the largest US banks saw profits boosted by higher interest rates and flagged early signs of a recovery in investment banking but warned of consumer stress and that commercial real estate losses would mount.
In their results on Friday, JPMorgan Chase JPM.N and Wells Fargo WFC.N reported sharp rises in net interest income, which measures the difference between banks’ income from loans and payouts on deposits, leading to higher profits.
Citigroup (CN), meanwhile, said second-quarter profit fell 36% as weakness in the bank’s trading business hurt profits from retail banking and wealth management.
Investor reaction was muted. JPM shares rose 0.5%, Wells shares were flat, while Citi shares fell 2%.
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 said consumer depreciation, i.
Citi also noted that default rates at credit cards and other retail outlets are rising and are expected to return to “normal levels” by the end of the year.
Separately, BlackRock chairman and CEO Larry Fink said in an interview with CNBC after the asset manager announced its earnings that he expected the economic environment to remain challenging. “Inflation will be more persistent than the market assumes,” he said, adding that it will rise by around 2% and 4%.
Both JPMorgan and Wells Fargo are providing more cash for expected losses on commercial real estate loans, a recent sign that tensions are building in the industry.
Wells reported that the provision for loan losses included a $949 million increase in the allowance, primarily for potential losses on commercial real estate office (CRE) loans and higher credit card loan balances.
“While we have not seen any significant losses in our office portfolio to date, we are bracing ourselves for the weakness that we believe will materialize in this market over time,” said Scharf.
Bank of America (BAC.N) and Morgan Stanley (MS.N) are set to report results on July 18th, followed by Goldman Sachs (GS.N) on July 19th.
Reporting by Niket Nishant, Noor Zainab Hussain, Mehnaz Yasmin and Manya Saini in Bengaluru; Nupur Anand and Saeed Azhar in New York; writing by Megan Davies; Edited by Paritosh Bansal and Nick Zieminski
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