If a recession were to arrive in the United States, there would normally be evidence of pain at America's biggest lenders. But so far, top banks aren't seeing major signs of weakness, even as they admit they're bracing for tougher times ahead.
What's happening: Results from JPMorgan Chase, Wells Fargo and Citigroup reveal that while Wall Street has been hit hard by the deep market slump, Main Street is humming along. Credit card spending still looks healthy. While banks are putting aside more money to cover bad loans, they aren't seeing significant problems yet.
"If you didn't look at anything else — you just looked at the bank numbers — you wouldn't be thinking there's a recession around the corner," Mark Conrad, a portfolio manager at Algebris Investments, told me.
Step back: JPMorgan Chase CEO Jamie Dimon freaked out investors last month when he predicted an economic "hurricane" caused by the war in Ukraine, rising inflation pressures and interest rate hikes from the Federal Reserve.
A plunge in dealmaking has sharply reduced the amount of money investment bankers are bringing in after a blockbuster 2021. Investment banking revenue at JPMorgan fell 61% last quarter. At Morgan Stanley, it dipped 55%.
"That was expected to be a weak spot, and it was," Stephen Biggar, an analyst at Argus Research, told me. "They just didn't get many deals closed."
But elsewhere, activity looked solid. Credit and debit card spending is up 15% year-over-year, JPMorgan said. While consumers are shelling out much more money on gas, travel and dining still jumped a "robust" 34%.
"You can see how resilient the consumer is in the US through the elevated payment rates and the low level of credit losses," Citi CEO Jane Fraser said on a call with analysts.
There's also still strong demand among companies for loans, even as executives say their confidence is flagging.
Home lending is one 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 have surged as the Federal Reserve has aggressively raised its benchmark rate in a bid to cap soaring prices, eating into demand. The Wall Street Journal is reporting that the Fed is likely to boost rates by three-quarters of a percentage point later this month, lowering expectations that it could pursue an even bigger increase.
Big picture: Broadly, the numbers look solid. Still, that doesn't mean a recession isn't possible. The mantra at banks right now is, "hope for the best, prepare for the worst."
"We know that if you have a recession, losses will go up," Dimon said. "We prepare for all that."
JPMorgan, Citi and Wells Fargo announced that they'd put aside billions of dollars to cover bad loans should they need to, while Citi and JPMorgan are pausing share buybacks to conserve cash.
Coming up: Bank of America's results and commentary from CEO Brian Moynihan will be watched closely to see if it keeps with the trend.
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