Strong earnings from JPMorgan Chase and Wells Fargo propelled US bank equities to their highest levels since the SVB collapse.
JPMorgan Chase and Wells Fargo have both reported robust quarterly earnings, which have restored investor confidence in the economy as a whole.
The profits of JPMorgan, the largest bank in the United States, exceeded the $12.1 billion that analysts had anticipated, totaling $12.9 billion. This remains a 2% decrease from the exact same period in 2023.
More significantly, the bank allocated $3.1 billion to mitigate prospective loan losses, a substantial increase from the third quarter of the previous year.
This indicates that it is preparing for the potential for an increase in defaults as certain borrowers struggle to manage their debt.
According to JPMorgan and Wells Fargo, consumer spending remained robust in the third quarter, despite the significant increase in provisions for loan losses.
Despite the fact that inflation is exerting pressure on lower-income households, both institutions have noted that American consumers are continuing to spend.
According to Jeremy Barnum, the Chief Financial Officer of JPMorgan, “spending patterns are stable.” His remarks, in conjunction with those of Wells Fargo’s Chief Financial Officer Michael Santomassimo, suggest that the economy is in a satisfactory state.
Indeed, the data supports them. Wells Fargo reported a nearly 2% increase in debit card purchases year-over-year, while credit card sales increased by 10%.
In the same vein, JPMorgan experienced a 6% increase in debit and credit card sales. Despite the ongoing concerns regarding inflation and interest rate hikes by the Federal Reserve, this data is providing investors with a sense of relief.
After the release of their earnings, JPMorgan’s shares increased by nearly 5%, while Wells Fargo’s stock increased by over 6%.
For an extended period, there has been a simmering concern regarding the possibility of a recession. Fears of a recession or a “hard landing” have arisen as a result of the implementation of higher interest rates, which are intended to mitigate inflation.
However, Barnum’s analysis indicates that consumers remain financially secure, as evidenced by a robust labour market. At present, the scenario of a “no-landing” appears to be more probable.
The collapse of SVB was the most significant bank failure since the 2008 financial crisis. The bank experienced significant losses in its bond portfolio as a result of the interest rate surge, which occurred after it had aggressively expanded during the tech bubble.
When consumers withdrew billions in a frenzy, SVB collapsed, causing regulators to scramble to stabilize the entire sector.
First Citizens Bank acquired SVB subsequent to its failure, acquiring $56 billion in deposits and $72 billion in loans at a discounted rate.
Around $20 billion was the estimated expense of the insurance fund’s collapse, according to the FDIC. They promptly responded by initiating the Bank Term Funding Program, which enabled banks to borrow against securities at their original value, thereby preventing the occurrence of additional liquidity issues.
Investigations were initiated into SVB’s management, with numerous individuals attributing the bank’s decline to its excessive risk-taking.
Michael Barr, the Vice Chair of Supervision at the Federal Reserve, characterized it as a “textbook case of mismanagement.”
SVB’s collapse continues to have an impact as of October. Congressional hearings are currently underway, with a demand for more stringent regulations on banks with assets of less than $250 billion.
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