Investors pushed the stocks of JPMorgan Chase (JPM) and Wells Fargo (WFC) higher Friday after third quarter results looked better than feared, a demonstration of resilience from the banking giants that points to the possibility of a soft landing for the US economy.
One JPMorgan executive was even willing to connect the bank’s performance to that soft landing, citing strength on the part of the lender’s consumer and corporate customers. An economy that achieves a soft landing is one where inflation slows without causing a recession.
"Broadly, I would say these earnings are consistent with the soft-landing narrative," the bank's CFO Jeremy Barnum told reporters. And the fact that companies are optimistic, he added, is "pretty consistent with this kind of Goldilocks economic situation."
Profits at JPMorgan and Wells Fargo both fell from the year-ago period by 2% and 11%, respectively, but those declines were less than what Wall Street expected.
And they both benefited from big jumps in investment banking as a two-year-long dealmaking drought appears to be ending. Investment banking fees at Wells Fargo were up 37% from a year ago, while they rose 31% at JPMorgan.
The stock of JPMorgan rose by more than 4% Friday, while Wells Fargo’s stock was up more than 5% — its best day since Feb. 15.
The results kicked off a third quarter earnings season as lenders face questions about how a new Federal Reserve rate-cutting cycle will affect the biggest US banks over the next year.
Their rivals Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS) are scheduled to report their results next week. Their stocks all rose Friday.
One positive surprise for analysts in JPMorgan’s results was that a key measure of lending profit known as net interest income increased during the third quarter. The bank also upped its estimate of how much net interest income it expects to earn for the entire year by $1.5 billion.
It does expect credit problems to rise, however. Its provisions for credit losses rose to $3.1 billion, up 125% from the year-ago period, due to rising challenges for customers, particularly those with credit cards.
But Barnum said that reflects a return to more normalized credit patterns, as opposed to new weaknesses. The US consumer, Barnum said, remains "on strong footing," and spending patterns “look normal.”
Wells Fargo’s CFO Mike Santomassimo said lower-income consumers are "the ones that are most stressed and most stretched in terms of their spending and borrowing" but "we haven't seen that same stress migrate up substantially to other cohorts of clients."
Wells Fargo’s net interest income, which measures the difference between what banks make from their lending and pay for their deposits, did drop 11% from a year earlier. That is a sign that it is now struggling more with the effect of elevated interest rates.
It also didn’t change an estimate of how much NII would drop for the entire year (about 9%).
"I think the positive, as you look at it, is that the fourth quarter is going to be in line with the third quarter," Santomassimo added. “So that's the first time now in a while where we've seen the beginning of a trough of NII.”
JPMorgan made it clear that it still expects its net interest income to drop next year as the Fed drops interest rates, telling analysts Friday that it would probably be below a consensus analyst estimate of $87 billion without offering a specific number.
"That still looks a little toppy," Barnum said, "but it's definitely in the ballpark."
JPMorgan CEO Jamie Dimon said his bank "reported strong underlying business and financial results in the third quarter" but he also highlighted concerns about geopolitics, saying "recent events show that conditions are treacherous and getting worse."
He said "inflation is slowing and the US economy remains resilient," but "several critical issues remain, including large fiscal deficits, infrastructure needs, restructuring of trade, and remilitarization of the world."
"While we hope for the best, these events and the prevailing uncertainty demonstrate why we must be prepared for any environment."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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