JPMorgan Chase & Co., Wells Fargo & Co., and Citigroup all reported second-quarter earnings on Friday.
JPMorgan Chase’s second-quarter profits registered a decline of 9.0 percent from one year ago. Net interest income came in at $22.7 billion, which represented an increase of 4.0 percent, year-over-year, but it has been down in both quarters of 2024.
Wells Fargo’s profit was down 1.0 percent from a year ago.
And, Citigroup saw its profits rise by 10.0 percent over the past year.
Each bank saw very mixed results through much of their performance over the past quarter…and past year.
The state of the economy and the quantitative tightening of the Federal Reserve to fight inflation were given as the primary reasons for the mixed results being produced by the banks.
But, there is one overwhelming thing that each bank highlights and which dominates all the press releases reporting on the second quarter results.
Let me just take you through what was reported in the Wall Street Journal.
Jeremy Barnum, Chief Financial Officer of JPMorgan Chase, reports the changes coming from the “lower-income consumers”. They are changing their behavior in a significant way, shifting their spending “to nondiscretionary from discretionary purchases” and are experiencing a major increase in charge-offs on credit cards, which rose in the second quarter “nearly two-thirds for a year earlier.”
Wells Fargo Chief Financial Officer Mike Santomassimo stated, “When you really dig into what’s happening across different consumers, the folds on the lower end of the wealth or income spectrum are struggling more.”
Mark Mason, chief financial officer of Citigroup, is quoted: “Consumers with lower credit scores were spending less and delinquencies were up….”
The banking data seem to support the split in the U.S. economy that I have been writing about for quite some time now.
Over the past twenty years or so, the United States has seen the income/wealth distribution become more skewed toward the wealthy…and not by insignificant amounts.
And, one reads this in the reporting in the New York Times and the Financial Times, as well as in the Wall Street Journal.
The less well-off are suffering more during this period of time than are the better-off.
The economy is growing at a modest pace…in excess of 2.0 percent…and the unemployment rate, although it has increased a little bit in recent months, is still not too far away from a 50-year low…around 4.0 percent….
The aggregate data seem to be doing OK.
But, the aggregate data hide the bifurcation that has taken place in the country.
The less-well-off are finding times getting tougher and tougher.
This is showing up in the polls….
And, this is showing up, as we see, in the second-quarter banking statistics.
Furthermore, this is a situation investors should keep their eyes on.
The delinquencies and the charge-offs in the consumer area are rising and give off the feeling that they will continue to rise in the near future.
What does this mean for the commercial banking system?
My thought: commercial banks are going through a period when higher interest rates are going to have a larger impact on less-well-off borrowers, and this will continue to grow for some period of time.
What does this mean for the economy?
My thought: the economy is really split, with the well-off doing “just fine” and the less well-off feeling a real crunch on their ability to live.
My guess is that we are going to see more and more stories about this problem as the economy moves forward in the near term.
It is not at all clear about how the government is going to respond.
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