The largest US banks have now reported third quarter earnings. This round of earnings was of particular interest because:
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- Bond yields have risen to 16 year highs.
- Banks quarterly reports can share insights about the strength of consumers and the economy – which investors want to know due to how it impacts inflation and therefore rates.
Here’s what we’ve found so far:
- Most banks reported higher net interest income.
- This isn’t surprising as higher rates allow banks to charge higher interest on loans. However, net income margins are expected to fall now as lending slows, while the rates paid on deposits rise.
- Consumer lenders did better than investment banks.
- Morgan Stanley reported a decline in profits due to a slowdown in M&A activity, while Goldman Sachs took a hit on the sale of three business units. In general, fee income at most banks has grown very slowly over the last few quarters.
- Consumers are still in reasonably good shape, but spending is slowing:
- Consumer lenders noted that most consumers are in good shape but borrowing and spending are slowing. Most banks expect a significant slowdown in consumer spending in the next quarter.
- Bad loans are rising:
- Delinquencies and late payments were still low by historical levels, but rose the most since the pandemic began.
- Mortgage lending was down a lot:
- JP Morgan, Citigroup and Wells Fargo reported mortgage origination down 9%, 17% and 70% respectively. The variance here is a reflection of the different customer bases, but isn’t surprising given sky high mortgage rates.
