Big U.S. banks, helped by rising interest rates and resilient consumers, posted solid results at the end of 2022, but anticipate a deterioration in the economy and have put more money aside to deal with possible defaults .
The largest of them, JPMorgan Chase, now believes that a “moderate recession” from the 4th quarter is the most likely scenario, while Citigroup and Bank of America have mentioned a “deterioration” in the outlook and Wells Fargo a less favorable economic environment.
To prepare for the possibility that their customers will not be able to repay their debts, they have increased their reserves: by 1.4 billion dollars at JPMorgan, 640 million at Citigroup, 403 million at Bank of America and 397 million at Wells Fargo.
In the meantime, establishments continued to make profits, even if they were sometimes lower than in 2021.
Net profits rose in the fourth quarter by 6% to $11 billion at JPMorgan and by 2% to $6.9 billion at Bank of America.
On the other hand, they fell by 21% to 2.5 billion dollars for Citigroup and by 50% to 2.9 billion at Wells Fargo, which also had to record significant charges linked to past scandals.
Consumer spending
The US economy remains “solid right now with consumers continuing to spend their money and healthy businesses” as the effects of the pandemic continue to fade, JPMorgan boss Jamie Dimon said.
Spending by the bank’s private customers with their debit and credit cards thus increased by 9%, he said.
Mark Mason, the chief financial officer of Citigroup, for his part highlighted the fact that the unpaid bills on the credit cards of his American customers remained at historically low levels. In other good news for the global economy, he said temperatures in Europe have so far remained subdued, warding off the prospect of a major energy crisis.
But there are still many uncertainties about the “ultimate effects” of geopolitical tensions such as the war in Ukraine, but also of the vulnerability of the energy and food markets, inflation and the increase in key rates initiated by the American central bank. , underlined Mr. Dimon.
Fewer real estate purchases
Except for Wells Fargo, the turnover of the large American establishments increased, thanks in particular to the increase in net interest income, i.e. the difference between the interest that a bank earns on loans granted to its customers and the interest that it pays to savers.
These net interest income, boosted by the rate hike initiated in 2022 by the American central bank (Fed) to fight against high inflation, jumped 48% at JPMorgan, 29% at Bank of America and 45% at Wells Fargo.
However, the rise in interest rates also has negative effects, for example by dissuading certain households from embarking on a property purchase.
Revenues from this activity fell by 46% at JPMorgan or 57% at Wells Fargo.
Given the economic uncertainty, companies are also reluctant to embark on fundraising, IPOs or mergers and acquisitions, causing the commissions generated by investment bankers to plummet: from 58% at Citigroup, 57% at JPMorgan, 54% at Bank of America, 32% at Wells Fargo.
The activities of banks on the financial markets, which were particularly turbulent in the fourth quarter, held up well, on the other hand.
After falling on the heels of the earnings release, bank stocks rallied and by 4:50 p.m. GMT were trading up 1.2% for JPMorgan, 0.7% for Bank of America, 0, 4% for Citigroup. Wells Fargo fell 0.7%.
The results revealed “no big surprises,” said Stuart Plesser, banking sector specialist at S&P Global Ratings.
“We know we’re going to have a kind of recession later in the year which could shake up the economy but for the moment it does not translate into the figures”, he says, referring to net interest income , the good performance of repayments and the increase in shareholders’ equity.
“The whole question is how deep the recession will be, and that will depend on how much the Fed will raise interest rates, and therefore inflation,” adds the expert.