Wrapup 1: U.S. banks point to resilient but slowing economy, flag risks ahead

First Republic Bank

14/07/2023 14:23

July 13 (Reuters) - 
    Some of the largest U.S. banks got a profit boost from
higher interest rates and pointed to early signs of recovery in
investment banking but warned that the economy was slowing and
losses would increase in commercial real estate. 
  
        In their earnings on Friday, 
    JPMorgan Chase  JPM.N 
     and 
    Wells Fargo  WFC.N 
     reported sharp increases in net interest income, which
measures the difference between what banks earn on loans and pay
out on deposits, that drove up profits. 
  
        
    Citigroup
      C.N , meanwhile, said profit tumbled 36% in the second
quarter as weakness in the bank's trading business blunted gains
from its personal banking and wealth management.
        JPM's shares rose 2.8% and Wells' shares rose 4% while
Citi rose 1%. 
  
        U.S. consumers still have a healthy balance sheet, the
banks said, but warned spending was slowing and there had been a
modest deterioration in some consumer debt. 
    "The U.S. economy continues to be resilient," JPMorgan Chief
Executive Jamie Dimon said. But he added that consumers are
"slowly using up their cash buffers."  
        On a conference call, the largest U.S. bank's chief
financial officer, Jeremy Barnum, said loan growth demand is
muted apart from cards and auto segments. The CFO added that the
bank was seeing "green shoots" in trading and investment banking
but it was too early to call a trend.
  
    There have been growing worries around the health of the
U.S. economy against a backdrop of aggressive interest rate
hikes by the Federal Reserve and high inflation. Investors have
worried that high interest rates could push the economy into a
recession, but the outlook remains uncertain.
        Wells CEO Charlie Scharf said the range of scenarios for
the economy should narrow over the next few quarters. For now,
the economy is performing better than many expected but will
likely continue slowing.     
    Wells Fargo said consumer charge-offs, meaning debts that a
bank has written off and does not expect to recover, continued
to modestly deteriorate. 
    Wells also reported that provision for credit losses
included a $949 million increase in the allowance, mainly for
potential losses in commercial real estate (CRE) office loans,
as well as for higher credit card loan balances. 
    "While we haven’t seen significant losses in our office
portfolio to-date, we are reserving for the weakness that we
expect to play out in that market over time," Scharf said.  
    Bank of America  BAC.N  and Morgan Stanley  MS.N  will
announce their results on July 18, followed by Goldman Sachs
 GS.N  on July 19.
    

 (Reporting by Niket Nishant, Noor Zainab Hussain,  Mehnaz
Yasmin and Manya Saini in Bengaluru;  Nupur Anand and Saeed
Azhar in New York; Writing by Megan Davies; editing by Paritosh
Bansal and Nick Zieminski)
 ((megan.davies@thomsonreuters.com; +1 646 357 6565;))