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

The biggest US bank, JPMorgan Chase, set aside $1.4 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 $403 million in possible bad loans as Chief Executive Brian Moynihan alluded to an "increasingly slowing economic environment," while Citigroup reserved $640 million and Wells Fargo $397 million for similar purposes.

While bankers said they still are not seeing signs of acute stress, shares of all four banks fell Friday following the cautious outlook.

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."

- '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 $11.0 billion, up six percent from a year ago, while revenues rose 18 percent to $34.5 billion.

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

Chief Executive Jamie 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 $6.9 billion, up two percent from a year ago on an 11 percent jump in revenues to $24.5 billion.

The results included a 33 percent rise in charge-offs to $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 percent to $2.5 billion, while revenues climbed 6.0 percent to $18 billion.

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

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

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

In early trading Friday, JPMorgan Chase was down 0.8 percent at $138.40, while Citigroup fell 0.3 percent to $48.95.

Bank of America dropped 1.9 percent to $33.82 and Wells Fargo lost 2.6 percent to $41.74.

(B.Hartmann--BBZ)