US bank earnings show consumer finance ‘shows no heightened risk concerns’

By Andrew Keshner

Prices continue to rise as September inflation data came in higher than expected earlier this week

With all the worries about inflation and the possibility of a recession, just released earnings reports from major banks show that the wallets of many ordinary Americans can generally cope with higher prices – for now.

Equity markets ended Monday on a positive note after starting with a tumble and rebounding on the back of hotter-than-expected September inflation data.

Comments from executives at JPMorgan Chase & Co. (JPM), Wells Fargo (WFC) and Citibank (C) on this month’s third-quarter earnings calls suggested consumers still had their own rebound despite the pressure. However, the optimistic words were cut with caution.

It’s a reminder that assessing a person’s financial health is a tricky mix of sentiment and also dollars and cents. Consumer sentiment remained gloomy on Friday, but improved slightly according to the University of Michigan consumer sentiment gauge, and data showed retail sales were flat in September.

After JPMorgan’s third-quarter earnings and revenue estimates beat estimates, an analyst on the earnings call asked if any “cracks” were emerging, including for folks in the retail banking business.

There’s high inflation, rising interest rates, higher mortgage rates, questions about fuel prices and more, CEO Jamie Dimon said.

“It’s not a leap in the current numbers. It’s quite predictable that it will weigh on future numbers,” said the banker, who has been vocal about his potential recession concerns. At the moment, however, the “balance sheet for consumers is very good,” he remarked at one point.

At Wells Fargo, CEO Charlie Scharf noted that average deposits declined from Q2 to Q3 but are still above pre-pandemic levels. There is a segment of customers who are seeing their balances “steadily dropping” and their balances are now below pre-pandemic levels, he said.

“It’s important to note that this remains a small percentage of our overall customer base,” he said. “Overall, our consumer deposit health indicators, including cash flow, payroll and overdraft trends, still do not show heightened risk concerns,” he said.

Wells Fargo had stronger-than-expected third-quarter earnings to counter analyst miscalculations.

Britain and Europe face challenges, Citi CEO Jane Fraser said in a speech hours after Britain’s Prime Minister Liz Truss sacked her Chancellor of the Exchequer on Friday.

“However, the US economy remains relatively resilient. So while we see signs of an economic slowdown, consumers and businesses remain healthy,” Fraser noted.

“Supply chain constraints are easing, the labor market remains strong, so it’s all a question of what it takes to really tame consistently high core inflation,” she added. Citi’s profits exceed profit targets

Of course, the numbers and insights that surface on a major bank’s conference call are just a small glimpse into people’s financial health. Indeed, inflation rates, at four-decade highs, have become a key political issue in the midterm elections less than a month away.

It’s also worth noting that there are quite a number of people who either don’t have a bank account or use a bank’s services very little. Most Americans are “fully banked,” meaning they have a bank account and don’t use alternative financial services like payday loans, according to Federal Reserve analysis.

But an estimated 13% are underbanked and another 5% are unbanked. Without traditional banking access, these consumers — who tend to be lower-income and black and Hispanic — use services like check cashing services and payday lenders, the Fed data showed.

Black, Hispanic and Native American families are particularly vulnerable to inflation, research and polls show

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all closed on Monday. JP Morgan, Well Fargo and Citi shares rose on Monday.

Wells Fargo stock is down about 9% year-to-date, while JPMorgan and Citigroup stock are down about 30% and 28%, respectively, over the same period.

-Andrew Keshner


(ENDS) Dow Jones Newswires

10/17/22 2011ET

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