NEW YORK–The latest earnings from the largest banks reflect robust economic growth, but those same banks are warning the good times may be coming to an end.
Combined, JPMorgan Chase, Wells Fargo and Citigroup reported more than $22 billion in profits in the third quarter, up by more than a third from the same quarter one year earlier. Combined revenue of $81 billion rose by 14%.
Higher interest rates combined with the ongoing strength of the economy are being credited for driving the strong performance.
“But more loans are going bad after what had been record-low losses. American consumers are starting to deplete coffers of extra cash they built up during the pandemic,” the Wall Street Journal noted.
The report added that fighting in the Middle East, the continuing war in Ukraine and rising government deficits are adding to the uncertainty.
‘Dangerous Time’
“This may be the most dangerous time the world has seen in decades,” JPMorgan CEO Jamie Dimon told the Wall Street Journal.
Added Citigroup CEO Jane Fraser in the same report, “All of these macro dynamics have clearly impacted client sentiment. September is always a busy month seeing clients, and I’m struck how consistently CEOs are less optimistic about 2024 than a few months ago.”
The Wall Street Journal noted, however, that bankers have been warning of a looming economic slowdown for much of the year.
Interest Income Expected to Grow
The Journal report noted third-quarter profit was driven primarily by a continued rise in interest income, with yields on long-term bonds recently pushing to the highest point since 2007. Wells Fargo and JPMorgan both said they expect net interest income to grow by more than previously expected in 2023, the publication said.
“The banks have been able to raise the rates they charge on loans faster than they increase their payouts on deposits,” the Journal reported. “But deposit costs are starting to catch up. JPMorgan is paying 2.53% on its interest-bearing deposits, versus 0.73% a year ago. Wells Fargo and Citi are also paying sharply higher deposit rates.”
Ongoing Surprise
As for the economy, “The U.S. keeps surprising us with its resilience, so I think it’s hard to call,” Citigroup Chief Financial Officer Mark Mason told the Journal. “I do think we’re likely to land things in a softer way than we thought.”
Overall credit-card loans jumped by more than spending at both JPMorgan and Citigroup, a sign that borrowers are carrying over bigger balances each month, the Journal explained.
‘Falling Behind on Some Loans’
“Borrowers are falling behind on some loans at faster rates than before the pandemic, squeezed by higher interest rates,” the Journal report stated. “More loans started to go bad in the third quarter. Net charge-offs roughly doubled at all three banks from a year earlier, though they remained a small proportion of overall lending.”
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