Major U.S. banks, including JPMorgan Chase, Wells Fargo, and Citigroup, reported increased profits despite a slowing economy and cautious consumer behavior. The higher interest rates set by the U.S. Federal Reserve allowed banks to charge more on loans while raising rates on deposits at a slower pace. However, consumers were depleting their savings and the banks noted that losses on credit cards and other debts were starting to rise. The banks also expressed concerns about the negative impact of proposed capital rules on lending and the potential need to exit certain products.
Citigroup CEO Jane Fraser mentioned a continued deceleration in spending, indicating a cautious consumer outlook. Wells Fargo reported increases in delinquencies and charge-offs in its credit card portfolio due to higher rates and a weakening economy. Regional lender PNC Financial Services also reported higher consumer loan delinquencies. However, JPMorgan Chase revised its economic outlook to a modest growth for a few quarters into 2024, leading to a release of net reserves.
The banks generally reported higher net interest income (NII) due to the benefit of higher interest rates. While JPMorgan, Citigroup, and Wells Fargo increased their outlook for NII, PNC’s NII declined. All four banks experienced a decline in average deposits. The banks highlighted concerns about proposed bank capital hikes by regulators, which could make some products and services uneconomical. Despite these challenges, shares of JPMorgan and Wells Fargo saw increases, while Citigroup’s stock closed slightly lower and PNC’s shares fell.
Bank executives acknowledged that the current levels of NII may not be sustainable in the long term. The banks credited their diverse businesses for the positive earnings results but expressed caution about the future outlook. Investors saw the reports as a relief, as bank stocks have been underperforming and had been priced for bad news.