Galloping inflation, consumer confidence at half mast, war in Ukraine, uncertainty regarding Fed policy: the dangers for growth are multiple, acknowledged the CEOs, like Jamie Dimon.
During their quarterly results, the major American banks painted the picture of a resilient American economy and of customers, both individuals and businesses, who are fairly well equipped to deal with the growing risks of economic turbulence.
Galloping inflation, consumer confidence at half mast, war in Ukraine, uncertainty regarding the policy of the American central bank (Fed), persistence of problems in the supply chain: the dangers for growth are multiple, recognized the bosses of these establishments.
All of these elements “are very likely to have negative consequences for the global economy at some point,” noted Jamie Dimon, CEO of JPMorgan Chase, on Thursday.
Companies must in particular pay even more attention to “security”, underlined Friday his counterpart at Citigroup, Jane Fraser: energy, IT and now food.
Nobody has a ‘crystal ball’ to guess what the Fed will decide to try to control inflation but ‘there is no doubt that economic conditions are tightening’ and that this ‘will affect business confidence and consumer activity,” also highlighted Goldman Sachs CEO David Solomon on Monday.
In this context, JPMorgan Chase, Citigroup, Wells Fargo and Goldman Sachs have slightly increased the reserves set aside to deal with any outstanding payments from their customers.
But nothing to do with the situation at the start of the pandemic, when Wall Street establishments inflated their safety cushions with billions.
Bank of America even slightly reduced its reserves, believing that the reduction in uncertainty linked to the pandemic and the current low default rates outweighed the “impact of a less robust macroeconomic outlook”.
American banks are in fact in agreement on one thing: their customers are generally in good financial health.
More restaurants and trips
Even without the government aid paid during the pandemic, individuals are still spending happily with their credit and debit cards (+10% at JPMorgan Chase as at Bank of America).
Inflation at its highest in more than 40 years in the United States contributes to this progression. But not only.
Consumers are certainly spending more at the pump, the price of gasoline having climbed to a record high in June in the United States, but also more in restaurants and for travel, noted Brian Moynihan of Bank of America Monday.
They also deposit more money in their account and repay their loans properly, he added.
Although the general sentiment has changed, there is little data so far to suggest that the United States is on the verge of a recession,” said Jane Fraser on Friday.
If we stick to the figures, “there is no indication of a weakness” of the economy, had noted the day before the chief financial officer of JPMorgan, Jeremy Barnum.
“You really have to dig to find some red flags,” like the fact that Wells Fargo granted a little less home loans in the second quarter, said Stuart Plesser, banking sector specialist at S&P Global Ratings.
“We hear everywhere regarding a deterioration of the economy, the possibility of a recession, but the results of the banks do not reflect these concerns,” he adds.
Same story for Quincy Krosby, of LPL Financial, for whom “the banks are showing precaution” without however saying that “the economy is in recession”.
The main concern in his eyes is for people on the lowest incomes, who will start to dip a little more into their savings, or even use their credit cards, to pay the bills.
On the purely financial side, all the major banks saw their profits fall from a particularly lucrative second quarter in 2021.
Some, like Goldman Sachs or Citigroup, however, did better than expected by analysts thanks in particular to their brokerage activities in very turbulent markets.
With the rise in rates initiated in March by the Fed, establishments with a significant retail banking activity also recorded a net increase in their net interest income, i.e. the difference between the interest earned on loans granted and that paid to savers.
All of them, on the other hand, have seen the commissions generated by their investment bankers, those who advise companies wishing to acquire a competitor, go public or raise money, fall in view of the uncertainty on the global economy and the turbulence on the stairs.
