Investors are sifting the first batch of corporate earnings this quarter to monitor potential recessions, consumer spending and market outlook. As Wall Street says, reports from the country’s largest banks coming to the beginning of the “earnings season” sent mixed signals.
Second-quarter profits for all banks were down compared to the same period last year. The last two banks to open their books were Bank of America, where quarterly profits fell by one-third, and Goldman Sachs, where profits fell by half.
But in some cases, the decline in profits wasn’t as severe as analysts expected. Consumers continued to spend and borrow. The market was volatile, but there was money to make in the transaction. And while bank leaders were wary, no one thought the recession was underway.
“This is a challenging market, but I think it’s important to say that 2008 isn’t complicated,” Morgan Stanley CEO James Gorman told analysts.
recession
Bank leaders expect the economy to slow, but said it will not fall into a complete contraction.
“There is nothing in the data I see that indicates that the United States is on the verge of recession,” Citigroup CEO Jane Fraser said in a conference call. “Recession can certainly happen, but it’s unlikely to be as serious as the others we’ve seen.”
Stock market conditions
The decline in the stock market this year was painful. And it is still difficult to predict what lies ahead for the future.
JPMorgan Chase executives also said there were no clear signs of a recession yet. Retail banking customers are still spending money on discretionary purchases such as travel and restaurants, they said.
Jeremy Burnham, Chief Financial Officer of JP Morgan, said in a phone call with reporters that he “examined the actual data very carefully.” “In essence, there is no evidence of actual weakness.”
Wells Fargo’s chief financial officer, Michael Santomasimo, said bank management was prepared for a variety of scenarios, but “things will probably get worse.”
Loan
Lending has increased in almost every bank, a positive sign for the economy. Consumers and businesses increased their largest bank borrowings by an average of 6% in the second quarter compared to the same period last year.
The biggest profit was corporate loans, up nearly 20% in the second quarter from a year ago in both JP Morgan and Bank of America. Mortgages slowed in the quarter, reflecting rising interest rates, but remained high at most banks. And in most cases, consumers and corporate customers continued to pay their debts on time. For example, at JP Morgan, only 0.5% of customers’ credit card loans were overdue for more than 90 days.
Almost all banks said they expect an increase in the number of borrowers, especially individuals, who are lagging behind in lending because of economic uncertainty. Six major banks expect credit losses to increase by nearly $ 2 billion next year than they did three months ago.
transaction
Most investors lost money in their investment accounts in the second quarter, but market volatility was a boon to banks. This was especially true for Goldman Sachs. At Goldman Sachs, transaction revenue increased 31%, outpacing its rivals. Citigroup also reported higher-than-expected results due to higher transaction fees and market profits.
In the wake of the financial crisis 10 years ago, some regulators and major banks, partly backed by law reforms, have vowed to hesitate to place risky bets on the market. Banks now say they are less risky than they used to be, but many of them generate an increase in revenue from transactions.
