Big US banks kicked-off the second-quarter earnings season on Friday (12 July) and despite earnings largely coming in ahead of Wall Street expectations, the share prices of JPMorgan Chase, (JPM:NYSE), Citigroup (C:NYSE) and Wells Fargo (WFC) all ended the day lower.
The results showed a widening divide between the rude health of Wall Street and a struggling Main Street with the former boosting investment banking and wealth management income while consumer lending income was more subdued.
Covid-19 stimulus packages have hitherto helped insulate most Americans from higher inflation but there are increasing signs lower-income households are starting to feel the pinch.
Citigroup’s chief financial officer Mark Mason noted customer account balances were now below pre-pandemic levels and US consumers were more cautious leading to slower spending.
Net income at the bank’s consumer lending division, which includes credit cards, slumped 74% driven by a higher cost of credit which jumped to $2.3 billion from $1.5 billion and was only partially offset by higher revenue and lower costs.
Growth in cards issued on behalf of retailers such as Costco (COST:NASDAQ) dropped to 6% from 18% in the prior quarter.
In contrast, Citi’s investment bank saw revenue jump 38% year-on-year to $1.63 billion driven by strength in debt capital markets issuance and an increase in IPO (initial public offering) activity.
Group EPS (earnings per share) grew 14% to $3.2 billion or $1.42 per share billion, beating analysts’ estimates of $1.39 per share. Citi is half-way through a major restructuring exercise where it has promised to cut as many as 20,000 jobs by 2026.
JPMorgan also noted weakness in its less-affluent customers with a ‘little bit’ more evidence of some rotation away from discretionary into non-discretionary spending which is a traditional sign of consumer weakness.
The company set aside $3.1 billion in bad and doubtful loan provisions against future credit losses, 62% more than the first quarter.
The country’s biggest lender reported a record quarterly profit of $18.15 billion or $6.12 per share, up 25% on a year ago, as investment banking and equity trading smashed expectations.
Stripping out one-off effects including an almost $8 billion gain from selling its stake in credit card company Visa (V:NYSE), the bank’s net income was up less than 1% to $4.26 per share, marginally above consensus estimates of $4.19.
Unlike smaller regional banks, JPMorgan has benefitted from being able to attract deposits despite being slow to increase interest paid on customer deposits as interest rates rose.
Even so, net interest income, which is the difference between what the bank earns on loans and what it pays on deposits, increased 4% to $22.9 billion.
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