Signs that customers are spending less and falling behind on their bills weighed on shares of major banks on Friday. JPMorgan Chase and Wells Fargo posted a decline of their adjusted earnings, while Citigroup reported sluggish spending on its bank cards.
Major banks have benefited from higher rates of interest over the past two years, but these have also led to consumers and businesses cutting back on spending attributable to higher financing costs.
JPMorgan needed to put aside $3.1 billion for potentially bad loans, a big increase from the previous 12 months. The bank had admitted that the variety of delinquencies amongst some Americans was increasing. Citigroup also needed to put aside more for potential losses.
“Higher interest rates over the longer term, persistently high housing prices, falling used car prices and signs of a slowing labor market require careful monitoring of the banking sector,” wrote Chris Stanley, head of the banking practice at Moody’s, in a note to investors.
JPMorgan’s profits rose sharply within the second quarter after the bank cashed in billions of dollars from its stake in Visa Inc.
The country’s largest bank by assets reported a profit of $18.15 billion on Friday, 25 percent greater than a 12 months earlier. JPMorgan earned $6.12 per share, beating analysts’ estimates.
A key contributor to JPMorgan’s results was a $7.9 billion gain from its stake in Visa. The bank converted its stake within the payment processing giant into common stock within the second quarter. The bank also donated $1 billion price of Visa stock to JPMorgan’s philanthropic organization.
Excluding this gain, profit fell in comparison with the identical quarter last 12 months attributable to higher expenses.
JPMorgan CEO Jamie Dimon reiterated his warnings about increased geopolitical risks and inflation in his statement to investors. Dimon has stated in several interviews that he believes that Americans and the bank should prepare for continued high inflation than normal and longer than expected.
“Some progress has been made in reducing inflation, but we still face numerous inflationary influences: large budget deficits, infrastructure needs, a restructuring of trade and a remilitarization of the world,” he said.
The newest Government data on consumer prices Thursday showed that price pressures are easing but still above the extent desired by the Federal Reserve. Nevertheless, Wall Street believes the Fed has made enough progress in reducing inflation that it should cut rates of interest at its September policy meeting.
JPMorgan shares fell just over 1 percent.
Two other major banks also presented their results on Friday: Wells Fargo and Citigroup.
Wells Fargo earned $4.91 billion, or $1.33 per share, within the second quarter, beating Wall Street expectations and the year-ago profit of $1.25 per share. Revenue of $20.7 billion also beat analyst forecasts and the year-ago profit of $20.5 billion.
Wells said growth in fee income helped offset declines in net interest income – the difference between loan income and payouts to depositors – which fell 9 percent to $11.9 billion. That figure was below Wall Street expectations and the bank’s shares fell nearly 7 percent in morning trading.
The average loan size fell again, from $946 million last 12 months to $917 million, as many borrowers stopped taking out loans attributable to high rates of interest.
Citigroup reported a ten percent increase in quarterly profit on Friday, boosted by strength in its investment banking business and sales of Visa shares, but bank executives said they felt consumer spending was slowing, particularly amongst individuals with lower credit scores and incomes.
Citi shares fell nearly 3%, but are still up greater than 20% 12 months to this point.
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Reporter Matt Ott from Washington contributed.
