The Banks are Fine!

A few major banks reported earnings the past few days. This tweet from Conor Sen summed up the results:

In a junk tape, with the S&P down ~2%, 4 of the 5 major banks that reported earnings this morning are positive for the day.

JPMorgan reported its highest quarterly net interest income ever. Wells Fargo increased their dividend 20%. US Bancorp posted record revenue. 

These are all good things. To state the obvious, there's a lot of bad news priced into the current market. When we get news that runs counter to that narrative it's fair to acknowledge it. 

Going through the bank earnings calls, they were echoing similar comments. In short, those comments were:

• Consumer's in good shape.

• Continuing to extend credit.

• Raising loan loss reserves only slightly.

• Attempting to remain vigilant of any issues.

• Higher rates benefitting their business.

• Strong capital levels allow them to withstand a variety of macro outcomes.

Jamie Dimon, who in recent months mentioned "a hurricane is coming" and "recession is likely", has not changed his banks direction in any meaningful way. One analyst asked:

"Jamie mentioned the potential of a recession in the next 6-9 months - are you seeing any cracks in the economy?"

The response:

"The short answer is no. We just don't see anything you could realistically describe as cracks in any of our credit performance. We're seeing very strong consumer spending. Balance sheets very good. Credit card borrowing is normalizing, not getting worse. However inflation, higher mortgage rates, oil, volatility, war not showing up in current numbers ... but highly likely will show up in future numbers."

So in summary, consumer metrics are good now but there's high probability they'll get worse in the future. Fair enough. 

A follow up question came in the form of JP Morgan's hiring plans.

"Your headcount increases might be the highest in the industry. If you did expect weakness 9 months from now, wouldn't you wait and try to get those people cheaper?"

Jamie Dimon: "No"

Classic Jamie. 

The Wells Fargo call charted a similar course. Responding to the same question around cracks in credit, Wells had this to say:

"For the most part, the credit portfolio is performing really well. Consumers are still in good shape. We continue to see historically low delinquencies and high payment rates. So far so good. We're digging through all info we have looking for signs of stress; things WILL slow, we're tightening up at the edges but still in the market and providing credit." 

Bank of America, the largest bank by retail deposits, was positive as well. CEO Brian Moynihan made it clear things don't seem very recession(y) while referencing the slide below.

• Consumers continue to spend at strong levels

• Average deposit levels are higher than pre-pandemic levels

• Credit card balances are below pre-pandemic levels and payment rates are above pre-pandemic levels

Moynihan elaborated, "With the talk of inflation, recession, and other factors ... would that show up in slower spending growth… we just don’t see it here at Bank of America."

In other words, it's business as usual while remaining hyper aware of anything that looks like it may break. Seems like a good game plan. 

Inflation still sucks. Mortgage rates are shocking. Politics are messy. We still have a war going on. But banks provided a nice reprieve from a constant cycle of bad news.

Things could change, but for now, things are going alright.