The quarterly earnings of US banks JPMorgan Chase and Wells Fargo exceeded expectations on Thursday, indicating a successful economic slowdown. Despite a revenue decline compared to the previous year, JPMorgan reported a net profit of $12.9 billion, above the projected $12.1 billion. Wells Fargo increased its profit to $5.1 billion, surpassing the expected $4.5 billion.
The stocks of both banks reacted positively: JPMorgan rose by 4.5 percent in early trading, while Wells Fargo recorded a gain of 5 percent. These results support the assumption that the U.S. Federal Reserve is successfully curbing inflation without plunging the economy into a recession – a so-called "soft landing.
Jeremy Barnum, CFO of JPMorgan, commented on the results with the words: 'These profits support the narrative of a soft landing—or perhaps even a no-landing scenario.' Despite reduced consumer spending in areas such as travel and entertainment, Barnum considers these changes normal and not a sign of exceptional stress among consumers.
Charlie Scharf, CEO of Wells Fargo, added: "We continue to see no signs of deterioration in consumer health. While spending with credit and debit cards is slowing, it remains robust." Michael Santomassimo, CFO of Wells Fargo, added that the burden of higher prices on lower-income Americans has not spilled over into other economic sectors.
Despite the positive results, banks face challenges: Net Interest Income (NII) – the profits from lending – will come under pressure due to falling US interest rates. While JPMorgan raises its NII forecast for 2024 to around $92.5 billion without giving an estimate for 2025, Wells Fargo expects a deterioration in NII for the last quarter of this year and raises its outlook for 2025.
Jamie Dimon, CEO of JPMorgan, expressed frustration over analysts' repeated questions about the NII forecast: "Next time, we'll just give out the damn number. I don't want to spend all my time on these calls going through their guesses about what the NII will be next year.
In addition to operational profits, JPMorgan reported strong results in investment banking. Investment banking fees increased by almost a third to 2.3 billion USD, while equity trading revenues rose by over a quarter to 2.6 billion USD. Meanwhile, fixed-income trading revenues remained stable at 4.5 billion USD.
The results of JPMorgan and Wells Fargo support the thesis of an economic "soft landing," where inflation is successfully curbed without significantly slowing growth. While the two banks were able to increase their profitability, the future remains interesting due to further interest rate cuts and the development of consumer spending.
