San Francisco Frontiers - Big US banks report strong earnings and stay bullish on AI

JPMorgan Chase and Goldman Sachs were among the banking heavyweights reporting higher third-quarter profits due in part to solid trading and financial advisory revenues while describing continued US consumer health despite inflation.

Executives face shifting challenges that include the grinding US-Iran war that has raised energy prices and recent moves by the Federal Reserve and other central banks to lift interest rates in light of inflation and rising US Treasury yields.

But perhaps the biggest question facing the industry's medium-term outlook concerns the durability of the AI boom, which has spawned a growing list of public worries, most recently over the risk that potentially dangerous AI rogue agents could harm or even destroy human life.

That is on top of other difficult questions over potential job loss due to AI and the impact of massive data centers on energy prices and water supplies.

Bankers acknowledged the resonance of these issues but see no appreciable impact on the momentum behind the buildout.

"No one knows the exact line of travel but at its base, this technology is real," said Goldman Sachs Chief Executive David Solomon.

"Lots of things can go wrong and slow it down," said Solomon, who describes the current period as a "very strong technology super cycle."

The push behind big AI ventures is "very much still in effect," said JPMorgan Chase's Chief Financial Officer Jeremy Barnum.

"The capex is still getting spent," Barnum told a media conference call. "The deals still need to get done. People still want access to the market."

- Healthy job market -

The comments came as JPMorgan reported a six percent increase in profits from a year ago to $15.3 billion, lower than the $15.85 billion forecast by FactSet analysts.

An earnings press release pointed to $658 million in securities investment losses and a 12 percent uptick in expenses, primarily driven by higher compensation and greater spending on technology and marketing.

After huge increases in the second quarter in markets-related business, revenue growth was expected to moderate somewhat in the just-finished July-September quarter.

JPMorgan still posted a 13 percent rise in markets securities service revenue, led by hefty growth in equity markets revenue that offset lower sales in trading for commodity and interest rate products.

Barnum described consumer spending as "sort of robust" despite persistent inflation. But monetary policy decisions remain a watch item.

"The consumer is currently very healthy, primarily because of a healthy labor market," Barnum said. "But if the central bank needs to cool things off and that involves an aggressive extended rate cycle, almost by definition, that's going to involve higher unemployment, which will produce weaker consumer credit results."

At Goldman Sachs, profits during the July-September period was $5.1 billion, up 33 percent from the year-ago level but down 20 percent from the second quarter when business conditions were especially robust.

Goldman saw muted activity in some parts of its markets business, such as fixed income, currency and commodities, where revenues were "essentially unchanged," the firm said in a press release.

But net revenue in equities trading soared 72 percent from the year-ago level.

Goldman also scored higher investment banking fees, citing increases in completed mergers and an elevated level of initial public and secondary equity offerings.

Solomon cited recent studies that estimate the US data center build-out as costing more than $10 trillion in investment through 2032. That prospect is a key element in what he describes as the current "top quartile" market.

While not every data center project will move forward, "there is going to be a lot of financing to do and we're going to be in the middle of that," he said. "It may be over time, as the financing needs growth, that there's pressure on rates and that will affect the returns and viability of certain projects."

But "one thing is clear, there's a lot of demand for compute at the moment," he said.

Among other big banks, Citigroup reported a 40 percent jump in profits to $5.2 billion, while Wells Fargo reported a 6.5 percent increase to $6.0 billion.

In early afternoon trading, JPMorgan shares rose 0.4 percent while Goldman Sachs climbed 0.8 percent. Citigroup dropped 3.4 percent while Wells Fargo lost 1.8 percent.

Q.Taylor--SFF