Big bank earnings start to show signs of stress

Hmm. So that’s not exactly what we and many CFOs wanted to see from big banks’ financial reports…

In the last few days, disappointing earnings results from Bank of America, Citi, Wells Fargo, and JPMorgan Chase sent shares tumbling for all the banking giants.

This week’s batch of earnings could complicate the narrative for big banks, casting doubts on the idea that higher-income consumers can singlehandedly keep US economic activity humming along.

It’s not like the K-shaped economy is going away anytime soon, though. “Banks that do business largely with rich individuals and corporations, such as Goldman Sachs and Morgan Stanley, fared comparatively better” than the aforementioned banks, the New York Times noted.

Indeed, Bank of America, Citi, and Wells Fargo all recorded fourth-quarter YoY growth in their loan books, including loans to businesses.

But the overall downbeat earnings reports don’t exactly scream good news ahead.

Until now, “the banks have had a pretty good year. The yield curve got more positively sloped, which helped with their net interest margins. Credit quality was pretty good,” Mark Zandi, chief economist at Moody’s Analytics, told CFO Brew. “There are some points of stress, but…loan growth, it feels like it’s picking up a bit, in part because of the relaxation of regulatory oversight and capital rules, liquidity requirements.”

Consumer outlooks. For their part, many of the banks maintained that the US consumer still looks solid.

“All of the metrics that we can see tell us the consumer remains resilient and in great shape,” Alastair Borthwick, CFO of Bank of America, said on a call with reporters, per the Wall Street Journal.

Meanwhile, Wells Fargo CEO Charles Scharf said on a January 14 earnings call that the institution has not “observed meaningful shifts in [consumer behavior] trends” with respect to “checking accounts with unemployment flows, direct deposit amounts, overdraft activity, and payment outflows.”

Not everyone had a totally rosy outlook, though.

JPMorgan Chase CEO Jamie Dimon—remember when he warned about hidden cockroaches in the economy in October?—cautioned in the company’s January 13 earnings report that while “the US economy has remained resilient,” there are also a bevy of “potential hazards” to navigate, including “complex geopolitical conditions, the risk of sticky inflation, and elevated asset prices.”