Banks’ profits fall, but high consumer spending softens the blow

Major banks are preparing for a slowdown in economic growth, but have not yet noticed any serious signs of problems, as consumer spending remains strong.

Citigroup, JPMorgan Chase and Wells Fargo said on Friday they had increased their reserves to hedge against future loan losses, a sign of potential problems due to rising interest rates straining borrowers and high inflation is cutting their spending. The chief executive of JPMorgan, Jamie Dimon, informed of "significant headwinds immediately in front of us," citing high inflation, geopolitical risks, and the "fragile state" of oil supplies and prices.

However, he also added that consumers remained "healthy" because of an abundance of job openings and still sufficient household savings at this moment, which provide a support to rising credit card spending and keep the level of non-performing loans low. The heads of other banks supported this assessment with varying degrees of confidence, as each of them reported its own problems.

The profit for the third quarter, which banks reported on Friday, was less than a year earlier, largely due to fluctuations in global financial markets that led to lower fees.

In the third quarter, JPMorgan's earnings amounted to $9.7 billion, which is 17% less than a year earlier. However, the results were better than analysts had expected, and Mr. Dimon noticed the bank could resume share buybacks at the beginning of the next year.

Citigroup also declared it could resume share buybacks next year. The bank's third-quarter profit fell 25 percent from a year ago, to $3.5 billion, better than analysts' expectations. Nevertheless, the chief executive of Citigroup, Jane Fraser, informed of "very challenging markets and slower growth."

Wells Fargo's profit fell to $3.5 billion in the third quarter, down 30 percent from the same period last year.

Morgan Stanley suffered from a 30 percent drop in profits to $2.6 billion. James Gorman, the bank's chief executive, called it "one of the most difficult quarters in the last 15 years." The bank's profit from the placement of shares and bonds, advising companies on mergers and stock trading has fallen sharply.

All banks said they expect economic growth to slow down, but are not sure how it will develop. Mr. Dimon told reporters that it could be anything, from a soft landing to a hard recession.

US retail sales in September were almost unchanged from August, according to a government report released on Friday. Sales for big-ticket items in places like car dealerships, furniture stores and electronics stores have fallen.

An analyst at Oxford Economics, Oren Klachkin said that consumer spending is declining, and a recession will force consumers to tighten their wallets even more, he considers it only a matter of time.