Morning Chronicle - US bank results highlight risk and resiliency

Reports from six US banking giants showed a significant drop in profits from the heady year-ago period, with most of the group establishing fresh provisions in case of defaults.

Executives expressed caution about what's to come in light of the growing hit from higher gasoline and food prices, along with the burden of increased lending costs following several Federal Reserve interest rate hikes and persistent supply chain problems.

But banks still haven't seen a significant rise in charge-offs from bad loans. They say many households still have a buffer of savings after conserving funds during the height of the pandemic when the federal government had generous relief programs.

Citigroup Chief Financial Officer Jane Fraser noted "sharply lower" consumer confidence compared with earlier in the year.

"That said, while sentiment has shifted, little of the data I see tells me the US is on the cusp of a recession," Fraser said Friday, adding that households savings provided "a cushion for future stress" amid a tight job market.

Fraser contrasted the backdrop in the United States with Europe, where vulnerability to Russian energy could make for a "difficult winter."

Executives acknowledged that the rising price of fuel and other essential goods poses burden to low-income households who are cutting back.

But most of the bank's clients are not in this situation now.

"US consumers remain quite resilient," Bank of America Chief Executive Brian Moynihan said Monday. "Consumers continue to spend at a healthy pace even as some time has passed since the receipt of any stimulus."

JPMorgan Chase Chief Executive described the consumer as "in great shape," which means that even if there is a recession, they're entering it in "far better shape" compared with 2008 or 2009.

- Muted tone -

On Monday Bank of America reported $6.2 billion in second-quarter profits, a 34 percent drop compared with the year-ago period when results were lifted by a large reserve release amid a strengthening macroeconomic backdrop.

In spite of weakness in some parts of the business, results were boosted by higher net interest income following Fed rate hikes.

Bank of America also enjoyed growth in overall loans and pointed to "improvement" in overall asset quality.

At Goldman Sachs -- the final of the US banking giants to report -- profits fell 48 percent to $2.8 billion, again due in part to its decision to set aside $667 million in provisions for credit losses.

Operations were mixed, with a big jump in revenues tied to trading amid volatile markets offsetting the hit from a drop in revenues connected to mergers and acquisition advising and loan underwriting.

The reports came on the heels of similar releases last week from JPMorgan Chase, Citigroup, Morgan Stanley and Wells Fargo.

Stuart Plesser, a senior director at S&P Global Ratings described the industry's overall tone as muted.

"They're not saying anything's disastrous, they're not optimistic, either," Plesser said.

"If you read the news, you got this possibility with inflation, the higher rate increases and all the other issues, but you can't point to anything in the results," he added.

N.Bobellon--MC-UK