Wall Street Banks Stockpile Funds For Potential Recession, Show Resilience

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NEW YORK (Reuters) – Wall Street’s largest banks increased rainy day funds to prepare for a possible future recession and reported weak investment banking results, but said consumers remained healthy and higher interest rates helped boost growth. boosted profits.

The outlook for major US banks has been clouded by the conflict between Russia and Ukraine and waning economic stimulus. Higher borrowing costs due to rate hikes by the US Federal Reserve have also reduced demand for mortgages and auto loans.

There were warnings about the economic situation.

“The US economy currently remains strong with consumers still spending excess money and businesses healthy,” Chief Executive Officer Jamie Dimon said, though he said he did not yet know “the ultimate effect of the coming headwinds.” in his macroeconomic outlook, “due to a mild recession in the central case”.

JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co reported gains ranging from 6% to 50%. Strong trading helped offset a slump in investment banking, while rate hikes by the US Federal Reserve helped earnings.

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“Today’s banking income was solid, with net interest income driving earnings, credit reserves growing significantly year-over-year and investment banking costs remaining low – all largely a reflection of the interest rate and economic environment,” said Peter Torrente, KPMG US National Industry Leader for banking and capital markets.

JPM’s earnings beat estimates, rising 6% on trading power and saying it would resume share buybacks. Bank of America reported a 2% profit increase as higher rates boosted revenues. However, Citigroup Inc reported a 21% drop in profits, with investment banking taking a hit. Wells Fargo reported that profits fell 50% as costs rose $3 billion.

“We ended the year strong and grew year over year in the fourth quarter in an increasingly slowing economic environment,” Bank of America CEO Brian Moynihan said in a statement, describing 2022 as one of the best years for the US. Bank. .

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Stocks were lower in premarket trading. JPMorgan was down almost 3%, Wells was down 4%, Bank of America was down 3%, Citi was about flat.

The four banks set aside about $4 billion in total to prepare for loan failures: JPM set aside $1.4 billion, Wells Fargo set aside $957 million, Bank of America set aside $1.1 billion, and Citi set aside $640 million .

Morgan Stanley and Goldman Sachs will follow next week.

Banks have been hit by a slump in M&A and IPOs. Global investment banking revenues fell to $15.3 billion in the fourth quarter, down more than 50% from a year earlier, according to data from Dealogic.

The poor run of JPMorgan’s investment banking unit continued in the quarter, with revenues down 57% as corporate executives slammed the shutters to prepare for a potential recession rather than spending money on deals. Bank of America’s investment banking costs more than halved in the quarter.

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However, JPM’s trading income benefited from market volatility as investors repositioned their bets to navigate a high interest rate environment.

Meanwhile, consumer companies have been a major focus in banks’ results. Household bills have been supported throughout much of the pandemic by a strong labor market and government stimulus, and while consumers are generally in good financial shape, more consumers are starting to fall into payment arrears.

“Consumers are still in pretty good shape,” said Bank of America Chief Financial Officer Alastair Borthwick. “There’s a lot of pent-up demand,” he said, especially for travel.

(Reporting by Saeed Azhar, Lananh Nguyen, Niket Nishant, Noor Zainab Hussain, Carolina Mandl, Manya Saini, Mehnaz Yasmin; Written by Megan Davies; Edited by Nick Zieminski)