JPMorgan Chase and Wells Fargo reported solid earnings on Friday, but big questions remain about the sector’s health and a potential recession.
Can the banks bounce back?
JPMorgan Chase and Wells Fargo, two of America’s biggest banks, reported solid earnings and revenue gains on Friday, pushing their stock prices higher in premarket trading. PNC Bank, a smaller lender, also posted a big jump in profit.
Despite the upbeat results, which exceeded analysts’ expectations, it’s too early to say that the worst of the banking crisis is over.
Banks’ financial results are closely followed for what they say about the health of the wider economy. With the U.S. potentially on the brink of recession, inflation running hot, and investors anxious for details on the damage to the sector wrought by the collapse of Silicon Valley Bank, the coming wave of bank earnings takes on particular importance.
“The things that we’re nervous about are all the things that we don’t have a lot of hard data about,” Karen Dynan, a Harvard economist and former Treasury official, told The Times. Bank earnings could be the final puzzle piece to give clarity on where the economy is heading.
A big focus will be on deposits. Fed data shows that customers pulled more than $600 billion worth of deposits from their accounts in the first quarter of this year, with most of that exodus occurring in the days after the fall of SVB last month. A big chunk of that appears to be flowing into money-market funds, a move that would give individuals a solid return on their deposits, but could choke off lending and investing in the wider economy.
It’s not just small and midsize lenders in the spotlight. Wall Street analysts estimate that the big three — JPMorgan, Bank of America and Wells Fargo — saw a $61 billion decline in deposits in the first quarter. Expect big bank chiefs to be grilled on deposit flows, and the impact of the decline of midsize lenders on their business.
The pressure to strengthen balance sheets could put a chill on lending. That pullback, combined with higher interest rates, may push companies to cut back on spending and speed up layoffs, economists fear.
“Bank lending is arguably the most important component of a strong economy, so insights from bank C.E.O.s are critical right now, as investors keep an eye on the trajectory of bank lending after the recent crisis of confidence in the banking sector,” David Trainer, C.E.O. of New Constructs, an investment research firm, said in a note this week.
At 7 a.m. Eastern, the JPMorgan Chase stock was up nearly 6 percent in pre-market trading. Following the collapse of Silicon Valley Bank, its shares had slumped into the red, along with much of the sector.HERE’S WHAT’S HAPPENING
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