So what's it gonna be? US bank results may portend a scary future

The coming of the recession has been fiercely debated for some time now. No one can guarantee anything, but some clues may indicate much. One such indication may be the results of the big banks that reported this week.

The big banks have reported their results. What do they suggest?

Banks kicked off earnings season on Wall Street and released several quarterly reports on profits and losses last Friday morning before trading began .

And not for nothing have banks been called "canaries in the economic coal mine". Sort of like guinea pigs.

Analysts commented on the results, saying, "Big banks are increasing the amount of cash they are setting aside to cover loan losses. The big uncertainty hanging over the banking industry is what will happen in the economy. If there is a serious recession, then some of them may have problems."

At the moment, consumers are still doing quite well. But savings are shrinking and bank account balances are thinning. Plus record rates that are likely to rise even higher. The banks seem to have sensed something and are bracing for worse.

Rates are at record levels. Source

"Delinquencies, charge-offs, loan losses are still relatively low. But they are finally starting to rise again," said Morningstar's Compton. "We don't see any sign of a recession yet. But tensions are finally starting to pick up a little bit."

One area showing increasing weakness amid the stock market decline and rising interest rates is investment banking. So argues Jay Hatfield of Infrastructure Capital Advisors, himself a former investment banker.

"Investment banking is a very cyclical sector. I was one myself, so I can attest to that."

So how have the banks fared?

JPMorgan $JPM

The bank posted fourth-quarter earnings and revenue that beat expectations, as the bank's interest income rose 48% on higher rates and loan growth.

Earnings of $3.57 per share beat estimates of $3.07 after excluding one-time items. Revenues of $35.57 billion compared with an estimate of $34.3 billion.
The bank said profit jumped 6% from a year earlier to $11.01 billion, or $3.57 a share. Revenue rose 17% to $35.57 billion, helped by a rise in net interest income to $20.3 billion, beating estimates by $1 billion as the bank saw a 6% increase in average loans.

Bank of America $BAC

Earnings: 85 cents per share versus 77 cents per share. Revenue: $24.66 billion versus $24.33 billion. The results were boosted by a strong increase in interest income due to higher rates and loan growth in the fourth quarter. The bank reported net interest income of $14.7 billion, up 29% year-over-year but slightly below Wall Street expectations of $14.8 billion.

The gain helped offset a decline in investment banking fees, which fell more than 50% to $1.1 billion.

Wells Fargo $WFC

Wells Fargo's net income fell 50% to $2.86 billion, or 67 cents a share, from $5.75 billion, or $1.38 a share, a year ago. The big drop was partly due to lower mortgage banking due to fewer mortgage originations, the bank said.

In the most recent period, the bank set aside $957 million for loan losses after reducing reserves by $452 million a year ago. The provisions included a $397 million increase in the allowance for loan losses, reflecting loan growth and a less favorable economic environment, the bank said.

Citigroup $C

The bank said its third-quarter profit fell 25% as it increased provisions for loan losses and saw a drop in investment banking. But Citi shares rose 0.65% as revenue rose more than analysts expected, helped by rising interest rates, and earnings per share beat Wall Street expectations.

According to Refinitiv, the bank reported revenue of USD18.51 billion, compared to the USD18.25 billion expected by analysts. It was a 6% increase year-over-year. In the quarter ended September 30, net income fell 25% year-over-year to $3.48 billion, or $1.63 earnings per share.

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Disclaimer: This is in no way an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.