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

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

JPMorgan Chase and Citi experienced higher credit costs in the second quarter, reflecting greater stress on lower-income consumers
JPMorgan Chase and Citi experienced higher credit costs in the second quarter, reflecting greater stress on lower-income consumers. Photo: JUSTIN SULLIVAN / GETTY IMAGES NORTH AMERICA/Getty Images via AFP/File
Source: AFP

JPMorgan Chase and Citigroup reported increased second-quarter profits Friday despite somewhat higher costs to account for bad loans in light of greater stress on lower-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.

Read also

Lufthansa issues profit warning, launches 'turnaround'

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.

PAY ATTENTION: Share your outstanding story with our editors! Please reach us through info@corp.legit.ng!

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.

Read also

2024 bull market leaves out US small caps, so far

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.

Citi CEO Jane Fraser has cut jobs as part of reorganization, boosting eanrings due to lower costs
Citi CEO Jane Fraser has cut jobs as part of reorganization, boosting eanrings due to lower costs. Photo: Patrick T. Fallon / AFP/File
Source: AFP

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.

Read also

US consumer inflation eases more than expected in June

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.

Read also

Asian markets track Wall St records after Powell hints at rate cut

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

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.