Despite recession fears, US banks have solid activity, analysts say

If a recession hit the US, there would normally be evidence of pain from major US creditors.

But so far, major banks are not seeing major signs of weakness, even as they admit they are bracing for tougher times ahead.

Results from JPMorgan Chase, Wells Fargo and Citigroup reveal that while Wall Street has been hit hard by the deep market crash, Main Street is buzzing.

Credit card spending still looks healthy. While banks are setting aside more money to cover bad loans, they are still not seeing significant problems.

“If you didn’t look at anything else – just look at the bank numbers – you wouldn’t be thinking there’s a recession just around the corner,” said Mark Conrad, portfolio manager at Algebris Investments.

Step back: JPMorgan Chase CEO Jamie Dimon startled investors last month when he predicted an economic “hurricane” caused by the Ukraine war, mounting inflationary pressures and Federal Reserve interest rate hikes.

A slump in trading has drastically reduced the amount of cash investment bankers are bringing in after a 2021 blockbuster.

JPMorgan’s investment bank revenue fell 61% in the last quarter. At Morgan Stanley, it was down 55%.

“This was expected to be a weakness, and it was,” said Stephen Biggar, an analyst at Argus Research. “They just didn’t close a lot of deals.”

But elsewhere, activity seemed solid. Spending on credit and debit cards increased 15% year-over-year, JPMorgan said.

While consumers are spending a lot more money on gas, travel and meals are still up a “robust” 34%.

“You can see how resilient the US consumer is through the high payment rates and low level of credit losses,” Citi CEO Jane Fraser said on a conference call with analysts.

There is also strong demand among companies for loans, even as executives say their confidence is waning.

Housing credit is an exception. Wells Fargo reported 53% lower revenue from this business compared to the same period last year, while JPMorgan saw a 26% drop.

Mortgage rates rose as the Federal Reserve aggressively raised its benchmark rate in an attempt to curb rising prices, consuming demand.

The Wall Street Journal is reporting that the Fed will likely raise rates by three-quarters of a percentage point later this month, dampening expectations that it could pursue an even bigger hike.

Overall, the numbers look solid. Still, that doesn’t mean a recession isn’t possible. The mantra in banks now is “hope for the best, prepare for the worst”.

“We know that if there is a recession, losses will increase,” Dimon said. “We prepared for all of this.”

JPMorgan, Citi and Wells Fargo announced they would set aside billions of dollars to cover bad loans if needed, while Citi and JPMorgan are pausing share buybacks to save money.