Better-than-expected profits from JPMorgan Chase and Wells Fargo boosted market expectations for a “soft landing” for the U.S. economy, and U.S. bank stocks hit their highest level since the collapse of Silicon Valley Bank on Friday.
Quarterly earnings for the two largest U.S. banks by assets and the fourth-largest bank fell compared with the same period last year. JPMorgan Chase’s third-quarter net profit fell 2% to $12.9 billion, while Wells Fargo’s fell 11% to $5.1 billion.
However, analysts had predicted that JPMorgan Chase would report a quarterly net profit of $12.1 billion and Wells Fargo’s $4.5 billion. JPMorgan Chase shares rose 4.4% in New York on Friday, while Wells Fargo rose 5.6%.
The KBW Bank Index, which tracks the country’s 24 largest banks, rose more than 3%, pushing the sector past its most recent high in February 2023, before the regional U.S. banking crisis, and to its highest close since April 2022.
The gains from JPMorgan and Wells Fargo are the latest signs that the Federal Reserve may be able to tackle inflation without tipping the economy into recession: a so-called soft landing.
The Fed began raising interest rates rapidly in 2022 to tame inflation, but concerns about the health of the U.S. economy grew, and the central bank cut its benchmark rate for the first time last month.
“I think these earnings fit the narrative of a soft landing — or increasingly, a narrative of no landing,” said Jeremy Barnum, JPMorgan’s chief financial officer.
Barnum added that consumers spent less on things like travel and entertainment, but that the changes were “within the normal range and not indicative of abnormal levels of actual stress among consumers.”
“We continue to look for changes in consumer health — and we’re not seeing them,” said Wells Fargo CEO Charlie Scharf. “People are still spending on credit and debit cards. Growth is slowing, but it’s still healthy.”
Wells Fargo CFO Michael Santomassimo added that pressure from rising prices on lower-income Americans did not appear to be spreading to other parts of the economy.
However, Santomassimo said Wells Fargo had not yet seen any economic benefit from rate cuts, and corporate borrowers remained cautious.
For much of the past two years, banks’ lending profits, known as net interest income, have been the main source of profits, but lower U.S. interest rates are expected to weigh on banks.
JPMorgan reported NII of $23.5 billion in the latest quarter, up 3% from a year earlier.
Wells Fargo said NII in the final quarter of the year would be worse than previously expected, but raised its outlook for 2025.
JPMorgan, by contrast, raised its 2024 NII forecast to about $92.5 billion from $91 billion but did not provide a 2025 outlook, even though one of its most senior executives warned last month that analysts were too optimistic about next year’s NII.
But JPMorgan CEO Jamie Dimon on Friday seemed frustrated by analysts repeatedly asking about the bank’s NII outlook.
“Next time, let’s just give them the damn number,” he said. “I don’t want to spend all of our time on these calls talking about what they’re guessing NII is going to be next year.”
JPMorgan also reported better-than-expected numbers for its investment bank. Investment banking fees rose by nearly a third to $2.3 billion, while equity trading revenue rose by more than a quarter to $2.6 billion and fixed-income trading revenue was flat at $4.5 billion.
Bank of America, Citigroup and Goldman Sachs are due to report results on Oct. 15. Morgan Stanley is due to report the next day.
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