Big US banks report mixed earnings and gird for 'mild recession'

Major US banks reported mixed fourth-quarter results Friday as executives pointed to the rising odds of a "mild recession," with inflation and interest rate hikes challenging households and businesses.

The biggest US bank, JPMorgan Chase, set aside US$1.4 billion (RM6.07 billion) in fresh reserves in case of loan defaults, noting that its "central" scenario is "a mild recession" with somewhat higher unemployment.

Bank of America accounted for US$403 million in possible bad loans as chief executive Brian Moynihan alluded to an "increasingly slowing economic environment," while Citigroup reserved US$640 million and Wells Fargo US$397 million for similar purposes.

Citigroup chief financial officer Mark Mason described the outlook as "a rolling country-level recession rather than a simultaneous global downturn."

But Mason cited the moderate winter thus far in Europe as an ameliorating factor in the outlook, while noting that credit card delinquencies are still coming in at exceptionally low levels, a sign of consumer resilience.

"Our base case is still a mild recession in the latter part of 2023," he said in a briefing with reporters, calling the outlook "very manageable."

Bank shares initially tumbled on the reports, but reversed course in the middle of the session. All four banks finished solidly higher.

Briefing.com analyst Patrick O'Hare noted that JPMorgan chief executive Jamie Dimon has warned last year of a potential economic "hurricane."

"The banks are bracing for at least a mild recession, but it's not a hard landing," O'Hare told AFP.

'We remain vigilant' 

The addition of reserves in the fourth quarter reflects a shift from the year-ago period when many of the banks released reserves, boosting profits.

At JPMorgan, profits came in at US$11.0 billion, up 6% from a year ago, while revenues rose 18% to US$34.5 billion.

The biggest lift to earnings came from a whopping 48% rise in net interest income, offsetting the drag from lower investment banking results and elevated expenses.

Dimon praised the company's performance, saying the "US economy currently remains strong with consumers still spending excess cash and businesses healthy."

But he pointed to war in Ukraine, persistent inflation and tightening Federal Reserve policy as headwinds, adding that "we remain vigilant and are prepared for whatever happens," according to a JPMorgan press release.

While charge-offs for loan losses were abnormally low in 2022, JPMorgan forecast a return to historic levels by mid-2023.

Dimon, who has warned for months about major macroeconomic obstacles that could lead to a mild or severe recession, said his views had not changed.

"We don't know the future," Dimon told reporters. "I'm simply pointing out that there are geopolitical uncertainties, which are real and we just have our eyes focused on it."

"We hope they go away. They may not," he added at a briefing.

At Bank of America, profits came in at US$6.9 billion, up 2% from a year ago on an 11% jump in revenues to US$24.5 billion.

The results included a 33% rise in charge-offs to US$689 million compared with the prior quarter.

Chief financial officer Alastair Borthwick described overall asset quality as "strong with loss rates increasing modestly off recent historic lows."

For Citigroup, fourth-quarter profits fell 21% to US$2.5 billion, while revenues climbed 6.0% to US$18 billion.

Wells Fargo reported a 50% drop in fourth-quarter earnings to US$2.9 billion, due largely to a US$3.3 billion hit related to regulatory problems.

The bank in December agreed to pay US$2 billion to compensate customers and US$1.7 billion in civil fines, under a Consumer Financial Protection Bureau settlement.

Wells Fargo reported revenues of US$19.7 billion, down 5.7% from the year-ago period.

JPMorgan Chase finished up 2.5% at US$143.01, while Citigroup rose 1.7% to US$49.92.

Bank of America advanced 2.2% to US$35.23 and Wells Fargo jumped 3.3% to US$44.22.