JPMorgan Chase Co, Citigroup Inc., and Wells Fargo Co, all of the bellwethers of the U.S. economy, reported combined profits of $19 billion for the fourth quarter, each comfortably beating analyst estimates.
The beats were helped by reserve releases and other one-off items and the underlying performances were less compelling, according to analysts.
The bank shares fell by 2.1%, with Wells Fargo bucking the trend among the top six, amid concerns over a decline in trading revenues and loan growth.
The investors are concerned about where the growth is going to come from, said David Hendler, bank analyst at Viola Risk Advisors. There doesn't seem to be much sizzle in the forward quarters. The U.S. economy is still on a healthy path despite the headwinds of Omicron infections, 7% inflation and supply chain bottlenecks, according to bank executives.
Consumer lending and spending were up, a key metric watched by analysts, and loan growth was mixed.
JPMorgan CEO Jamie Dimon told analysts that the consumer is very strong. He said that 2021 was one of the best growth years despite Omicron's supply chains.
The average loans at JPMorgan, the country's largest lender, rose 6% year-on-year, while combined debit and credit card spend was up 26%. Wells Fargo's loans were down 3% year-on- year, but grew 5% during the second half of 2021, boosted by its consumer and commercial portfolios.
The overall lending at Citigroup was flat, because corporations are still flush with cash and have other financing options, said Chief Financial Officer Mark Mason, but loan balances on Citigroup-branded cards in North America were up 3% from a year ago and spending was 24% higher.
Bank of America Corp., the country's other major consumer lender, reports earnings on Wednesday.
Jason Ware, chief investment officer for Albion Financial Group, said today that the three big banks that reported today were not only a decent environment for loan growth in the 4th quarter, but that management teams are optimistic that this will continue into 2022.
The yield curve may not be fully benefitting from the steepening yield curve, because investors worry that rising inflation could hurt consumer spending, while loan growth may not be strong enough to surpass deposit growth.
Keith Buchanan, portfolio manager at Globalt in Atlanta said that the economy isn't as strong as we thought it was.
Inflationary pressures weighed on costs as banks faced cutthroat hiring competition and are forced to pay more to recruit and keep talent, executives said.
Mason, a Citigroup spokesman, said that the hiring process has been very competitive. There is a lot of pressure on what one has to pay to attract talent. The Wall Street businesses of JPMorgan and Citigroup fared well, with both reporting big declines in trading. Another stellar quarter for deals cushioned that.
The trading environment may look like it may look like during the rest of the year, as Wall Street's other trading giants, Goldman Sachs Group Inc and Morgan Stanley, will report next week.
Analysts expect a further normalization as the Fed slows and eventually stops its asset purchases.
Hendler said that you're not going to have the fixed income trading boom that you had in the lower rates environment, with corporations rushing to refinance at lower rates.