What recession? Bank earnings show a resilient US consumer
The entire world is willing a recession into existence — except signs of one haven’t shown in bank earnings yet.
Major banks, including Wells Fargo, JPMorgan and Bank of America, reported earnings in recent days, and the results came in strong.
Here are the takeaways from this season’s bank earnings:
1/ American households still look strong based on key bank metrics. Americans are borrowing more, but the losses on those loans (credit losses) are still at historic lows.
2/ Investment banking revenue fell significantly. The lack of IPOs and deal activity is having a big impact on banks. JPMorgan’s investment banking revenue fell 47%, and other major banks are also seeing similar declines.
3/ Higher net interest income is making up for investment banking losses. Banks are giving out more loans, and rising rates are leading to higher net interest income (profit on those loans).
4/ Banks have strong enough balance sheets to withstand a recession. The loans on their books aren’t seeing any signs of deteriorating.
The Financial Select Sector SPDR Fund (NYSE:XLF) is down 19% this year, but the largest US banks, JPMorgan and Bank of America, have lost nearly a third of their value.
The Average Joe: “That 3.5% dividend yield on a high-quality name like JPMorgan (NYSE:JPM) is looking quite juicy.”