DATA DISPATCH

Big US banks post strong Q2 growth despite recession fears

Thursday, July 21, 2022 12:05 PM ET

By Harry Terris and Xylex Mangulabnan

Market Intelligence

GDP may already be sagging and financial conditions have tightened sharply, but for big U.S. banks reporting second-
quarter earnings, a recession still remains only a possibility.

"There's essentially no evidence of any weakness in the actual results this quarter," JPMorgan Chase & Co. CFO
Jeremy Barnum said during the bank's earnings call. Like other executives at the Big Four banks, JPMorgan Chase
Chairman and CEO Jamie Dimon observed that employment and consumer spending remain healthy. Citigroup Inc. CEO
Jane Fraser said her bank is worried about the prospect of a downturn, but "the economy is quite well positioned to
withstand it."

Stalling activity in securities issuance as the Federal Reserve has made a rapid pivot to fight inflation did hammer
investment banking revenue, but higher rates helped drive a surge in net interest income that pushed the four banks to
year-over-year increases in operating revenue across the board.

The return to positive credit provisioning at all four banks for the first time in almost two years also hurt year-prior EPS
comparisons, but allowance builds were largely driven by strong loan growth.

NIMs rebound

The revenue growth reflected rapidly expanding net interest margins and improving guidance for further increases in net
interest income.

Reported NIMs jumped 13 basis points to 23 basis points sequentially across the Big Four, beating consensus forecasts
as of July 11 by 6 basis points to 17 basis points.

JPMorgan Chase and Wells Fargo & Co. upped their net interest income forecasts for the year, and Bank of America
Corp. projected that its net interest income growth would accelerate over the third and fourth quarters.

Investment banking fees tumbled 36.9% to 53.8% year over year, but volatility continued to help support strong trading
activity, which is generally a bigger revenue source across the Big Four.

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 The market turbulence did hit leveraged loans the banks made ahead of a rapid increase in credit spreads, resulting in
more than $300 million of markdowns each at JPMorgan Chase and Bank of America.

No big builds

The credit provisions translated into sequential increases in ratios of reserves to gross loans ranging from 1 basis point
at JPMorgan Chase and Wells Fargo to 22 basis points at Citi, and a decline of 6 basis points at Bank of America.

JPMorgan Chase said it added roughly $400 million to its reserves in the quarter, reflecting loan growth and a modest
deterioration in the economic outlook. The bank also said it did not increase the probability for a downturn in the
parameters it uses to determine its allowance, like it did in the first quarter.

Bank of America said builds for loan growth and a worse macroeconomic outlook were offset by better asset quality and
reduced pandemic uncertainty. Chairman, CEO and President Brian Moynihan emphasized that current expected credit
loss accounting is forward-looking, and the inputs the bank uses assume a substantial deterioration in the economy,
with unemployment rising to 5% over about five months from 3.6% currently.

Of the central bank's campaign to cool the economy and tame inflation, CFO Alastair Borthwick said that the "consumer
is in great shape and the Fed has got a lot of work to do."

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 This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately
managed division of S&P Global.

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