Large Banks Kick Off Earnings Season With A Bang But Warn Of A Rocky Road Ahead


Key Takeaways

  • Three large U.S. banks—JPMorgan, Wells Fargo, and Citigroup—reported better earnings than expected for the third quarter of 2023.
  • Higher interest rates drove up net interest income for banks, even as costs of deposits rose.
  • Wells Fargo and Citi warn that consumer resilience may be wearing down, as more customers struggle to make payments and credit card volumes fall.
  • JPMorgan’s Jamie Dimon cautioned wars in Ukraine and Israel could impact food and energy markets.

Large U.S. banks kicked off the third-quarter earnings seasons Friday with higher-than-expected profits, pushing U.S. stocks briefly higher before rising economic and geopolitical concerns leaped to the forefront.

JPMorgan (JPM), Wells Fargo (WFC), and Citigroup (C) all reported third-quarter earnings that exceeded consensus market forecasts, easing concerns about the toll rising interest rates are taking on the banking industry.

While each of three banking giants noted that consumers and businesses currently remain in fairly good shape, they cautioned that challenges loom, and pockets of their businesses are exhibiting signs of stress.

Dimon Laments ‘Dangerous Time’

JPMorgan Chase, the nation’s largest bank, led the way. It’s third-quarter profit surged 35% from the same period a year ago. Per-share earnings of $4.33 surpassed analyst estimates, and revenue increased 22% to $39.9 billion.

However, Jamie Dimon, JPMorgan’s chief executive, cautioned that relatively healthy U.S. consumers and businesses could face even higher interest rates ahead as inflation risks remain elevated.

Dimon added that the Israel-Hamas War, and the ongoing war in Ukraine, may have “far-reaching impacts on energy and food markets, global trade and geopolitical relationships.”

“This may be the most dangerous time the world has seen in decades,” Dimon said.

The Good News

Shares of Well Fargo also rose as much as 4.8% after its third-quarter earnings surged 61% to $1.48 per share. Similarly, Citibank’s shares increased as much as 4.3%. The company said its third-quarter profit rose 2% to $1.63 per share.

All three banks had plenty of good news for investors. Higher interest rates have benefited most banks, boosting their net interest income, even as they have increased funding costs.

That remained the case for both JPMorgan and Wells Fargo, which said their net interest income rose 30% and 8% from the same period a year ago, respectively. Wells Fargo added that its full-year net interest income would increase 16%, up from a previous forecast of 14%.

At Citibank, whose core businesses focus on credit cards, market trading and services for large companies, revenue in corporate banking and consumer banking rose 18% and 13%, respectively.

The Worrisome News

In its quarterly earnings conference call, Mark Mason, Citigroup’s chief financial officer, echoed Dimon’s sentiment that U.S. consumers remain resilient, but the bank’s credit card spending volume fell compared with this year’s second quarter.

Likewise, rising interest rates have added pressure to banks’ expenses. JPMorgan said its interest expense almost tripled in the quarter from last year, primarily because it had to pay more on deposits.

Wells Fargo’s results, meanwhile, revealed that more consumers are having trouble making loan payments. The bank charged off $850 million in bad loans during the quarter, more than double the amount it wrote off in the same period last year. In the past two quarters, it has set aside an additional $1.3 billion to cover potential loan losses.

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