Central U.S. Banks Report Increased Profits Despite Economic Deceleration and Consumer Caution
On Friday, central U.S. banks reported increased profits, attributing them to the positive impact of rising interest rates, even though the economy was slowing down and consumers were displaying noticeable caution. JPMorgan (JPM.N), Wells Fargo (WFC.N), and Citigroup (C.N) revealed that they had boosted their earnings thanks to the higher interest rates set by the U.S. Federal Reserve. These rates enabled them to charge more for loans while adjusting deposit rates more conservatively. The banks also observed that consumers were beginning to dip into their savings, with both Citibank and Wells Fargo noting a growing occurrence of losses related to credit cards and other forms of debt.
A Cautionary Monetary Policy and Its Effects
The Federal Reserve’s assertive monetary policy has increased the cost of borrowing for both consumers and businesses, putting pressure on debt repayment. Simultaneously, banks are taking a more cautious approach, slowing down the extension of credit and bolstering their cash reserves, especially following the recent collapses of Silicon Valley Bank and two other lenders earlier this year.
Citigroup’s CEO, Jane Fraser, Cautions on Consumer Spending
Citigroup’s CEO, Jane Fraser, noted a sustained decrease in consumer spending, signaling a growing sense of caution among the public. While the third-largest U.S. bank stated that delinquency rates remained relatively low compared to historical averages, they also set aside more funds to account for potentially souring loans.
Wells Fargo Reports Increased Charge-offs and Loan Declines
Wells Fargo reported an increase in charge-offs, indicating loans that had to be written off within its credit card portfolio. The bank’s CEO, Charlie Scharf, shared during an analyst call that average commercial and consumer loans had decreased compared to the previous quarter. This decline was attributed to higher interest rates and a gradual economic slowdown, which added pressure to loan growth. Scharf mentioned in the bank’s press release, “While the economy has shown resilience, we’re witnessing the effects of economic deceleration, reflected in declining loan balances and a slight deterioration in charge-offs.