Large US banks reported a round of solid quarterly profits yesterday, but cautioned of rising recession risks as the economy absorbs higher inflation and a dramatic shift is central bank policy.
Citing the uncertain economic outlook, JPMorgan Chase set aside US$808 million (RM3.78 billion) in case of bad loans, while Citigroup reserved for US$370 million in potential losses and Wells Fargo, US$385 million.
Today’s litany of worries include stubborn inflation that has prompted significant central bank interest rate hikes; and geopolitical fallout from the Russian invasion of Ukraine, including uncertainty in the oil market and worries about European energy security this winter.
Wells Fargo Chief Executive Charlie Scharf said the bank continues to see “historically low delinquencies,” but that it is “monitoring risks” tied to macroeconomic and geopolitical headwinds.
“While we do expect to see continued increases in delinquencies and ultimately credit losses,the timing is unclear,” Scarf said.
Lower profits
At JPMorgan, profits fell 17 per cent to US$9.7 billion on a 10 per cent increase in revenues to US$32.7 billion.
Higher interest rates helped boost the bank’s net interest income, but JPMorgan suffered a big drop in investment banking revenues in a period that has seen far fewer initial public offerings compared with a year ago.
Dimon said businesses “remain healthy,” but alluded to “significant headwinds immediately in front of us.”
In an interview with CNBC earlier this week, Dimon said a US recession was likely in early-to-mid 2023 and that the stock market could fall another 20 per cent.
At Citigroup, profits fell 25 per cent to US$3.5 billion, while revenues rose six per cent of US$18.5 billion.
Results were boosted by higher net interest income as well a gain from the sale of the bank’s Philippines business. These benefits were offset by lower revenues in investment banking and higher operating expenses.
Citi opted to set aside reserves in light of rising recession risk.
Under a “baseline” economic scenario, Citi sees unemployment rising to about four per cent from the current 3.5 per cent. Under a “downside” scenario, unemployment would be well above five per cent, said Citi Chief Financial Officer Mark Mason on a conference call with journalists.
Even under a darker outcome, Mason said “I don’t think there’s a financial crisis coming anything close to the magnitude of what we’ve seen.”
At Wells Fargo, profits fell 31 per cent to US$3.5 billion, while revenues rose four per cent to US$19.5 billion.
Results were dented by US$2 billion in fresh costs linked to “litigation, customer remediation and regulatory matters.”
During a conference call with analysts, Scharf, who was named CEO in 2019 following a fake accounts scandal under earlier executive regimes, said the bank “still has open regulatory matters” related to earlier times and was looking to get past them “as quickly as we can.”
JPMorgan shares gained 1.7 per cent to US$111.19, while Citi rose 0.7 per cent to US$43.23 and Wells Fargo gained 1.9 per cent to US$43.17. — AFP
