Stubborn inflation is taking a toll on the nation’s largest banks.
On Friday, JPMorgan Chase and Wells Fargo released earnings that were stuttered with indications that despite recent signs of cooling inflation, the economy continues to be a drag. Both lenders reported that their overall deposits fell and that they had to hike the average interest rates that they pay on checking and savings accounts — good news for borrowers but not for the banks themselves.
Wells Fargo’s shares fell steeply in trading before the market opened, as the bank reported that its net interest income — a closely watched financial metric that essentially measures how much money it is able to make from lending — fell 9 percent, to $11.9 billion. Loan demand from businesses “remained tepid,” said Charles W. Scharf, the bank’s chief executive.
The bank reported profit of $4.9 billion, down slightly from a year earlier, on revenue of $20.7 billion, up 1 percent from last year.
JPMorgan’s results were mixed. On one hand, the nation’s largest bank pulled in $13.1 billion in profit, but it concurrently disclosed more than half a billion dollars in losses from having to offload sinking mortgage investments, among others. Overall results were bolstered by its investment banking and trading business, and a one time windfall from the sale of shares in Visa.
JPMorgan chief executive Jamie Dimon said in a statement: “The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown.”
Bank earnings are typically closely watched for clues about the economy. Major lenders have warned for several quarters about mounting credit-card unpaid credit balances and risks from investments in commercial real estate.
After a relatively fallow period, banks stocks have been rising sharply lately on hopes that the Federal Reserve will lower interest rates and that pending regulations on them will be eased.
Account balances dipped at Wells Fargo, and more borrowers are having trouble keeping up with their loans — the bank’s net charge-offs increased more than 70 percent from a year ago, to $1.3 billion — but the company’s reserves for credit losses dropped compared to a year ago. Mr. Scharf said the performance of the bank’s loans “was consistent with our expectations.”