“These results are consistent with a soft landing,” Chief Financial Officer Jeremy Barnum said on a conference call. “That’s pretty consistent with this kind of Goldilocks economic situation.”
The Fed’s recent interest-rate cut will take time to work its way through the banking system and most analysts expect that banks’ profits from lending should decline as they will have to lower interest charges on loans.
But JPMorgan surprised to the upside on Friday and fellow big bank Wells Fargo also posted better-than-expected results. Shares of JPMorgan rose 4%, their best day since early 2023 and were closing in on their all-time high. Wells Fargo rose more than 5%. Those performances helped lead banks and financial stocks higher and power gains in the broader market.
The bank results add to economic data that suggest the Fed is approaching the soft landing. Inflation is slowly coming closer to the Fed’s target, new job creation is strong and unemployment remains low.
However, it isn’t all good news. At JPMorgan, deposit balances shrank overall and the bank has said it expects higher loan losses from its credit-card arm, a signal that some consumers are feeling increasingly stretched.
Profit at JPMorgan fell 2% to $12.9 billion, but was better than expected thanks to the lending profits. The drop was largely the result of increased losses in credit-card loans. Revenue rose 7% to $42.6 billion.
Overall, customers at Chase Bank showed that they are continuing to spend on credit cards, and balances are growing. Although expected losses from credit-card loans are going up, executives said there isn’t too much cause for worry.
“The consumer is fine and remains in effect on strong footing,” Barnum said.
That sentiment was echoed at Wells Fargo, where CFO Mike Santomassimo said consumer spending had pulled back slightly and lower-income customers were struggling, but overall the picture remained solid.
“The consumers on the lower income or wealth level still are the ones who are most stressed and most stretched,” he said.
At Wells Fargo, profit fell 11% in the third quarter to $5.11 billion, weighed down by higher funding costs for customer deposits. The bank slightly dimmed its own forecast for net interest income for the rest of the year. Still, its profit was better than expected.
Companies have been hesitant lately to build inventory or invest in capital expenditures, Santomassimo said, but could become less cautious if a soft landing does become a reality. Lower interest rates and getting past November’s elections would also help, he said.
“All those things will come together and help give clients more confidence,” he said.
For the full year, JPMorgan now expects to bring in $92.5 billion in net interest income, the difference in what it pays for deposits and what it earns on loans, up slightly from earlier predictions. The bank has been earning record amounts on its loans, benefiting from its massive scale of cheap deposits and the Fed’s higher interest rates. Executives were warning only weeks ago that analysts were too optimistic about the bank’s ability to continue the record hauls.
Chief Executive Jamie Dimon told analysts on Friday that he still expects profits from lending to go down next year.
JPMorgan’s investment banking fees totaled $2.2 billion in the quarter, compared with $1.7 billion a year ago. Trading revenue was up 8% overall, driven mostly by a bull market for stocks that has kept the bank’s traders busy.
Wall Street is waking up from a long slumber caused by higher interest rates, but volumes are still not at levels seen in 2021, when easing of monetary policy led to a bumper year of mergers and acquisitions and capital markets activity.
Dimon continued to warn, as he has regularly in recent years, that macroeconomic concerns and geopolitical risks have him worried, including the growing conflict in the Middle East and the U.S. government’s record-high debt outstanding.