San Francisco Frontiers - Mixed profits at US banks amid weaker signs from low-income customers

Citigroup Chief Financial Officer Mark Mason pointed to a "bit of a pullback" from consumers with lower credit scores who are strained from higher interest rates and the consumer price hikes of recent years.

"The customer base is being discerning in terms of the nature of the spend in light of the environment that we're in," Mason said on a conference call with reporters.

JPMorgan Chase has also seen lower-income segments shift spending from discretionary to essential goods, which "for obvious reasons is understood to be a little bit of a sign of weakness," said Chief Financial Officer Jeremy Barnum, while noting that most of the bank's customers tend to have higher credit scores.

Barnum offered measured optimism on the economy, saying conditions remain broadly positive, while noting persistent big-picture risks that include geopolitical instability and the chance that inflation and interest rate will stay high.

"Yes the economy is slowing but it seems to be very much on trend of a soft landing,” Barnum said.

The comments came as the two banks reported second-quarter results, along with Wells Fargo, which saw profits dip.

- Investment banking strength -

At JPMorgan, profits came in at $18.1 billion, up 25 percent from the year-ago period.

The earnings were boosted by a $7.9 billion gain from a share-exchange transaction with Visa. Without that one-time boost, profits would have lagged the 2023 quarter.

Revenues rose 22 percent to $50.2 billion.

The lender, the biggest US bank by assets, pointed to a boost from higher investment banking fees and asset management fees, as well as a lift from greater net interest income (NII); NII is based on the interest JPMorgan earns on loans less the interest it pays out to depositors.

The provision for credit losses rose five percent to $3.1 billion, with JPMorgan citing credit cards as a driver of both charge-offs in the latest quarter and reserves over future potential losses.

The bank has noted that consumer balance sheets were boosted by government payout programs during Covid-19 that have largely lapsed. JPMorgan described the rising delinquencies as "credit normalization."

- Cost cuts -

At Citi, second-quarter profits were $3.2 billion, up 10 percent from the year-ago period, reflecting the benefit of a six percent drop in operating expenses following a reorganization directed by CEO Jane Fraser. That push is expected to reduce overall headcount by 20,000.

Revenues rose four percent to $20.1 billion.

While Citi's net interest income fell compared with the 2023 period, it benefited from a $400 million gain on the Visa equity exchange, as well as higher profits in four of five divisions, including markets and wealth management.

The one division that suffered lower profit was US personal banking, which was hit by higher credit losses.

Mason said the bank had increased monitoring of consumers, while shifting its approach on drawing new credit card customers to favor those with higher credit scores.

While loan delinquencies have risen above pre-Covid levels, the bank saw an improvement at the end of the quarter that may be a sign of consumer "resiliency," according to Mason.

Earlier this week, two US regulators fined Citi $135.6 million over the bank's lack of progress in upgrading risk management and internal controls following a 2020 regulatory crackdown.

At Wells Fargo, profits were down 0.5 percent at $4.9 billion, while revenues edged up 0.7 percent at $20.7 billion.

While NII fell compared to the year-ago level, the bank pointed to growth in fee-based revenues in investment banking and asset management.

Although Wells experienced higher charge offs in the second quarter due in part to poorly performing commercial real estate loans, the bank’s provisions for bad loans fell compared with the year-ago period.

All three banks fell following the reports, with JPMorgan losing 1.8 percent, Citi 2.3 percent and Wells Fargo 6.9 percent.

V.Perez--SFF