why it matters
Given its size, JPMorgan is a proxy for the banking industry in particular. The bank’s chief executive, Jamie Dimon, has deep political ties, and his forecasts on the economy are scrutinized in some circles as closely as those of a central banker.
On Friday, Mr Dimon told analysts he expected the US economy to experience a “soft landing, a mild recession or a hard recession”, although he did not specify a time frame for the prediction. “Obviously, we will hope for the best,” he said.
In its latest report, the bank listed several risks, including that consumers are struggling to drain their cash buffers and inflation remains high. Last quarter, JPMorgan lost $900 million on investments in US Treasury bonds and mortgage-backed securities, which have declined in value as rates rise – but that was barely a dent in its results.
Analysts are watching for signs of economic stress at Wells Fargo, one of the nation’s largest mortgage lenders. “The US economy is doing better than many expected,” said Charles W. Scharf, the bank’s chief executive.
The bank said on Friday that loans in its commercial business have soured, but its consumer business has been fairly stable, with a drop in losses on auto loans offset by a modest rise in credit-card defaults. Loans to commercial real estate, especially office space, are a problem, and the bank has set aside another $1 billion for losses.
Unlike other banks, Citigroup reported a decline in second-quarter profits, although the decline was not as severe as analysts had predicted. “The long-awaited return to investment banking has yet to materialise, making this quarter a disappointing quarter,” Citi Chief Executive Jane Fraser said in a statement.
The three major banks that reported earnings on Friday have been all over the news this year, thanks in part to their key roles in attempting to become a stabilizing force during the spring banking crisis in which three smaller lenders collapsed. JPMorgan bought one of those failed banks, First Republic. In a sign of just how troubled the institution has become, JPMorgan said Friday it was setting aside $1.2 billion to deal with losses in First Republic’s loan portfolio.
Analysts are still hopeful that the acquisition will ultimately prove worthwhile, thanks to First Republic’s base of wealthy clients and coastal branches, which JPMorgan’s asset and wealth management arms are already buoyed by Friday’s results. .
The US government debt-limit impasse in April and May was also reflected in the banks’ results, with Citi citing concerns that negotiations pushed investment-banking customers “over the edge” during the second quarter.
what will happen next
Over the next week or so, several other banks will report quarterly earnings. Most eyes will be on Wednesday’s results from Goldman Sachs, which has publicly signaled a bleak situation, and regional banks such as Western Alliance and Comerica, which will look to prove they have recovered from their recent troubles.