NEW YORK – Signs of consumers slowing down their spending and falling behind on their bills weighed down shares of the big banks on Friday. JPMorgan Chase and Wells Fargo saw their adjusted profits fall, while Citigroup saw sluggish spending on its credit cards.
The major banks have benefitted from higher interest rates for the last two years, but those rates are causing consumers and businesses to slow down spending due to higher financing costs.
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JPMorgan set aside $3.1 billion to cover potentially bad loans, up sharply from a year earlier, as the bank acknowledged that delinquencies were climbing among some Americans. Meanwhile Citigroup had to set aside more for potential losses as well.
“Higher-for-longer interest rates, persistently high housing prices, softening used vehicle values, and signs of a cooling labor market merit focused scrutiny from the banking sector,” wrote Chris Stanley, the banking industry practice lead at Moody’s, in a note to investors.
JPMorgan’s headline profits jumped sharply in the second quarter as the bank cashed in billions of dollars of its holdings in Visa Inc.
The nation’s biggest bank by assets on Friday posted a profit of $18.15 billion, up 25% from a year earlier. On a per share basis, JPMorgan earned $6.12 per share, which beat analysts’ estimates.
A significant contributor to JPMorgan’s results was a $7.9 billion gain on its stake in Visa. The bank converted its ownership in the payment processing giant into common stock in the second quarter. The bank also donated $1 billion of Visa shares to JPMorgan’s philanthropic organization.
Without the gain, profit fell compared with the year-ago quarter due to higher expenses.
JPMorgan CEO Jamie Dimon repeated his warnings about heightened geopolitical risks and inflation in his statement to investors. Dimon, in several interviews, has said he believes that Americans and the bank should be preparing for inflation to remain higher than normal for longer than people are expecting.
“There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world,” he said.
The latest government reading on consumer prices Thursday showed that price pressures are easing but remain above levels preferred by the Federal Reserve. Still, Wall Street is betting that the Fed has made enough progress brining inflation down that it will cut interest rates at its policy meeting in September.
JPMorgan shares dropped slightly more than 1%.
Two other major banks also reported their results Friday: Wells Fargo and Citigroup.
Wells Fargo earned $4.91 billion in the second quarter, or $1.33 per share, which beat Wall Street targets and last year’s $1.25 per share profit. Revenue of $20.7 billion also beat analyst forecasts and last year’s $20.5 billion.
Wells said growth in fee-based revenue helped to offset declines in net interest income — the difference between what it earned on loans and what it paid out to depositors — which fell 9% to $11.9 billion. That figure was below Wall Street expectations and the bank's shares fell nearly 7% in morning trading.
The San Francisco bank said average loans fell again, to $917 million from $946 million a year ago, as elevated interest rates kept many borrowers on the sidelines.
Citigroup posted a 10% gain on its quarter profit on Friday, helped by strength in its investment banking businesses as well its own sale of Visa shares. But the bank executives said they felt that consumer spending was slowing, particularly among those with lower credit scores and incomes.
Citi shares fell almost 3%, although they're still up more than 20% so far this year.
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Reporter Matt Ott in Washington contributed.