Though high interest rates have consumers and businesses feeling the pinch, they’ve been a boon to the US’s largest banks. JPMorgan Chase, Citigroup, and Wells Fargo all had stronger-than-expected third-quarter results. In total, the banks earned $22 billion in profit, more than a third higher than in Q3 2022, the Wall Street Journal reported. Their combined revenue was $81 billion, or 14% higher than last year.
Bank stocks dipped last month following the Fed’s meeting, where it held interest rates steady. But though high rates have hurt some smaller banks, they’ve helped keep the large banks’ net interest margins healthy according to CNBC. JPMorgan’s net interest income (NII) was up 30% year over year, rising to $22.9 billion. Wells Fargo’s declined slightly from last quarter, but was still 8% higher than it was last year.
“Normalizing” economy: The US economy remains strong, but shows some signs of slowing, bank executives said during recent earnings calls. JPMorgan and Citi took note of consumer spending, with JPMorgan CFO Jeremy Barnum saying, “we are coming on off a very low base. And so there's a hope and an expectation that we are on the path to normalization and improvement.”
Or as Citi CEO Jane Fraser put it, “Overall, I’d say we’re seeing a more cautious consumer, but not necessarily a recessionary one.”
Wells Fargo has seen a slight dip in loan performance. “While the economy has continued to be resilient, we are seeing the impact of the slowing economy with loan balances declining and charge-offs continuing to deteriorate modestly,” CEO Charles Scharf said in a statement. During the company’s earnings call, he observed that “higher rates and a slowing economy have weakened loan demand.”
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Citi still forecasts a recession, but one that keeps getting delayed. As Fraser stated, “the tight labor market keeps pushing the timing for this elusive recession later into this year or 2024.” JPMorgan’s US economists revised their predictions from a “very mild recession” to “modest growth…around 1% for a few quarters into 2024,” Barnum said in the bank’s earnings call.
However, JPMorgan CEO Jamie Dimon struck a cautious note, warning that geopolitical events such as the war in Ukraine and the Israel-Hamas war could shake up the economy. Inflation and interest rates could remain high due to the strong labor market and high government debt, he said. “This may be the most dangerous time the world has seen in decades,” he said.
Buffering against commercial real estate: Wells Fargo continued to build up reserves against possible loan losses this quarter, adding $333 million to the $949 million it earmarked in Q2. In particular, the bank’s concerned about losing money on office loans.
“The office portfolio, in particular in the commercial real estate sector, is the place where we’re seeing weakness,” Wells Fargo CFO Michael Santomassimo said, according to Reuters. “We do expect to see some losses there over time, but we haven’t seen anything significant yet.”
JPMorgan hasn’t seen a big decline in commercial real estate thus far. The bank has had “a trickle of charge-offs coming through the office space,” Barnum said, but added that “the numbers are very small.”