What’s Going On Here?Big banks JPMorgan, Wells Fargo, Citigroup, and Morgan Stanley reported a mixed bag of earnings on Friday. What Does This Mean?The US's biggest banks reported their results on Friday, and they were full of ups and downs. On the one hand, big banks boasted of plush consumer businesses: after all, they’re still making money from credit and debit card fees as folk keep spending despite the worsening economy. On top of that, higher interest rates helped balloon JPMorgan’s “net interest income” – that’s money it makes from lending minus the interest it pays – by 34%, and that helped America’s biggest bank grow its overall revenue by 10% versus this time last year.
On the other hand, though, the banks’ investment banking (IB) revenues plummeted as cautious companies stepped back from things like big mergers – which banks advise on for a fee – in this wearisome economic climate. In fact, Morgan Stanley’s IB revenue was 55% lower than the same time last year, which pulled its overall revenue down by 12%. Why Should I Care?Zooming out: Run for cover.
Banks build up cash reserves to cover themselves in case hard-up borrowers default on their loans, and adding to those cash piles took a massive bite out of their bottom-line profit last quarter. In fact, JPMorgan topped up reserves by a chunky $800 million, and its CEO blamed a dismal combination of sky-high inflation, rising interest rates, war in Ukraine, and a few other factors for the bank’s cautious move.
The bigger picture: Deep breaths.
Despite all the talk of a recession, we’re not actually doomed to repeat 2008’s financial crisis. Regulators learned a harsh lesson back then, and they’ve kept financial institutions on a short leash ever since, making sure their reserves are plump enough to cushion the blow a recession might bring. So if you’re looking for the smoke that comes as a crisis kindles, you probably won’t find it in the US banking system. | 