Main Street customers are giving CEOs of the biggest US banks some reason for cheer even as the Wall Street leaders warn of the pain a looming downturn would bring.
The relative strength of consumer-banking clients continues to prop up banks, with the Federal Reserve’s quest to quell inflation helping drive up net interest income. That windfall from NII -- revenue collected from loan payments minus what depositors are paid -- has proved particularly helpful at a time when investment bankers have been idled by skittish markets, keeping companies from doing business with them.
“Consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said, announcing his bank’s results Friday.
Still, Dimon warned of “significant headwinds” while his Morgan Stanley counterpart, James Gorman, cautioned about a “very uncertain and difficult environment” that could crimp economic growth.
Dimon hedged his optimism about consumers by rattling off a litany of pain, identifying challenges including “stubbornly high inflation,” the uncertain impacts of quantitative tightening, Russia’s attack on Ukraine and the fragile state of oil prices and supplies. “While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes,” he said.
Net interest income sees gains for banks
The mixed bag from some of the biggest US banks reporting third-quarter earnings was most visible in the slowdown plaguing their Wall Street operations. While trading desks were helped by volatile markets that boosted the firms’ fixed-income businesses, other major business lines -- equities trading, dealmaking and capital markets -- delivered letdown after letdown.
That contributed to a profit slide across the four major banks -- JPMorgan, Morgan Stanley, Citigroup Inc. and Wells Fargo & Co. -- that reported their results Friday.
Consumers in JPMorgan’s card business are maintaining “pristine” credit metrics, Chief Financial Officer Jeremy Barnum said Friday, while Wells Fargo CFO Mike Santomassimo called credit performance “very strong.” Still, there were some signs of strain. At Wells Fargo, net charge-offs as a percentage of average loans ticked up in a sign that consumers might be starting to fall behind on their loans. The bank expects to see delinquencies “at some point,” Santomassimo said.
Nevertheless, American consumers are still “in good shape” amid economic uncertainty, Bank of America Corp. CEO Brian Moynihan said earlier this week. His bank is scheduled to report its earnings Monday.
“The consumers basically have more money in their accounts by multiples than they did pre-pandemic,” he said at the Institute of International Finance annual membership meeting Wednesday. “They’re earning more money. Their credit quality is as high as it’s ever been. They have more excess capacity.”