Signs of trouble in consumer lending, renewed pressure to shrink staff and a slump in trading are rapidly becoming the big themes as U.S. banks post quarterly results.
On the second day of the industry’s earnings season, Bank of America Corp. and Wells Fargo & Co. posted figures that tracked some of the key trends from earlier reports by JPMorgan Chase & Co. and Citigroup Inc.
Every member of that group is preparing for the possibility that more people might struggle to pay their debts. And at Wells Fargo, a long-running probe related to mortgages had an impact, prompting the firm to book a $1 billion legal charge that made it the only lender among the four to miss analysts’ profit estimates.
1. Consumer Credit
All four banks boosted provisions for consumer-loan losses from the previous quarter, some prompted by an uptick in bad credit-card debt. Higher reserves can be a leading indicator for a turn in the credit cycle, but Bank of America Chief Financial Officer Paul Donofrio played down that concern. “We feel very good about our card portfolio,” he said. “Nothing here, from our perspective, unusual.”
Charles Peabody, a banking analyst at Compass Point Research & Trading, was less optimistic on Bloomberg Television after results began pouring in Thursday. “We’re at an inflection point in credit,” he said.
2. Interest Income
Bank of America and Wells Fargo joined JPMorgan in reporting an increase in net interest income. At Bank of America, it jumped to the highest level since 2011. Three rate hikes in the past year have increased lending margins. At Citigroup, revenue from that business slipped slightly from a year earlier.
3. Mortgage Costs