Today’s earnings reports from the major banks showed mixed results, but generally reflected a weakening economy.
- JP Morgan Chase, Morgan Stanley, Wells Fargo, and Citigroup—four of the country’s biggest banks—reported third-quarter earnings Friday morning. Bank of America and Goldman Sachs will be posting earnings next week.
- All four banks reported lower profit but several banks including Chase and Morgan Stanley reported better-than-predicted profits.
- “Performance for the period was mixed despite big increases in interest revenue,” says Investor’s Business Daily.
- “Capital markets did not improve in quarter three 2022, with no sign of improvement ahead, significantly reducing investment banking. [Loan volume] will weaken into a 2023 recession,” says CFRA Research director Kenneth Leon.
- “While there likely isn’t much to fear in the banks’ actual results, investors are worried that a recession is coming, and that could spell trouble for lenders’ bottom lines,” says Barron’s.
Why it’s important
The earnings results are mixed for the major banks, which are suffering from poor market conditions. High interest rates, low liquidity, lower investment revenue, a slowdown in market activity, and other factors have hurt the banks.
“Citigroup said Friday that its third-quarter earnings fell 25% as it bulked up its credit-loss provisions and investment banking slumped. However, Citi shares gained more than 1% as revenue climbed more than analysts expected, helped by rising interest rates, and earnings per share topped Wall Street expectations,” says CNBC.
“JPMorgan Chase kicked off earnings before the opening bell Friday. Its stock rose 2% after the bank’s quarterly results topped Wall Street consensus for earnings and revenue. Wells Fargo posted stronger-than-expected revenue for the third quarter, offsetting a profit miss. The stock was up 3%. Morgan Stanley reported a profit drop in the third quarter, prompting shares to fall nearly 5% in midday trading. Citigroup reported a 25% drop in third-quarter profit on Friday following weak investment banking activity,” says Yahoo Finance.
“Banks are facing greater liquidity constraints and are having to fund loan growth with higher cost deposits, debt, and securities portfolio runoffs, Morgan Stanley analyst Betsy Graseck noted last week. Rapidly-rising interest rates and higher capital requirements are leading to an accelerated upturn in the credit cycle—heading into a period when loans are more costly and difficult to obtain. That puts financial institutions with excess capital, liquidity, and positive operating leverage in the best position long-term,” says Investor’s Business Daily.