Despite mounting inflation concerns, just-released bank earnings painted a resilient picture for the US economy and US consumers, prompting talk that a recession could be milder than previous downturns.
Reports from six US banking giants showed a significant drop in profits from a tumultuous prior-year period, with most of the group building new reserves in case of default.
Facing the mounting burden of higher gasoline and food prices, as well as the burden of increased borrowing costs following several Federal Reserve rate hikes and ongoing supply chain issues, executives expressed caution about what is to come.
But banks still haven’t seen a significant increase in bad loan charges. They say many households still have a buffer of savings after saving money at the height of the pandemic, when the federal government had lavish aid programs.
Jane Fraser, Citigroup’s chief financial officer, noted that consumer confidence has “dipped sharply” from where it started the year.
“That said, while sentiment has changed, little of the data I see tells me the US is on the cusp of a recession,” Fraser said on Friday, adding that household savings “provide a cushion for future stress” in the midst of a tight job market.
Fraser contrasted the background in the United States with Europe, where vulnerability to Russian energy could mean a “tough winter”.
Executives acknowledged that soaring prices for fuel and other essential goods are a drain on low-income households who need to make savings.
But most of the bank’s customers are not in this situation right now.
“US consumers remain fairly resilient,” Bank of America chief executive Brian Moynihan said on Monday. “Consumers continue to spend at a healthy pace, even if some time has passed since receiving a stimulus.”
JPMorgan Chase’s chief executive described consumers as “in great shape,” meaning even if a recession occurs, they’ll enter it in “far better shape” than they did in 2008 or 2009.
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On Monday, Bank of America reported profit of $6.2 billion for the second quarter, down 34 percent from the same period last year, as results were boosted by a large release of reserves amid a strengthening macro backdrop.
Despite weakness in some parts of the business, results were boosted by higher net interest income following Fed rate hikes.
Bank of America also enjoyed growth in total loans, noting an “improving” in overall asset quality.
At Goldman Sachs — the US banking giants’ latest report — profits fell 48 percent to $2.8 billion, again in part due to a decision to set aside $667 million in loan loss provisions.
Business activity was mixed, with a large increase in trading-related revenue amid volatile markets offsetting a decline in revenue related to M&A advisory and lending.
The reports followed similar releases last week from JPMorgan Chase, Citigroup, Morgan Stanley and Wells Fargo.
Stuart Plesser, senior director at S&P Global Ratings, described the general tone of the industry as muted.
“They’re not saying anything catastrophic, nor are they optimistic,” Plesser said.
“If you read the news, you have that possibility with inflation, higher rate hikes and all the other issues, but you can’t point to anything in the results,” he added.
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