Consumers with weaker credit histories are facing pressure. And though headwinds remain, the nation’s banking public remains robust at U.S. banks.
JPMorgan Chase
JPM,
Wells Fargo & Co.
WFC,
and Citigroup Inc.
C,
reported stronger-than-expected profits on Friday, but the outlook remains cautious with a worsening geopolitical environment and some challenges emerging among people with lower credit scores.
Also read: JPMorgan Chase’s Q3 profit rises by 35%, bolstered by increased interest income as consumers and businesses ‘generally remain healthy’
Also read: Wells Fargo’s stock gains as third-quarter earnings top estimates by a wide margin
Also read: Citigroup’s third-quarter profit edges up and beats lowered expectations
Still to come on Tuesday are third-quarter updates from Goldman Sachs Group Inc.
GS,
and Bank of America Corp.
BAC,
followed by Morgan Stanley
MS,
on Wednesday.
On Friday, Citigroup Inc.
C,
Chief Financial Officer Mark Mason said people with FICO credit scores below 680 have been putting the brakes on some of their spending. Citi disclosed that 80% of its U.S. credit-card portfolio is prime with FICO scores above 680, and 20% below. The latter group tends to be more mindful about where they’re spending nowadays.
“When I look out at the market, I talked to our corporate clients. That’s where I tend to see them being more nervous about the softness in the consumer,” Mason said on Citi’s third-quarter conference call. “As we look at spending, we can certainly see some of that pressure for the lower FICIO, whereas when I think about the cards business, it’s very much driven by the affluent customer.”
Overall, Citi remains confident the overall outlook for its credit-card business remains healthy.
With higher interest rates pushing up the price of mortgages for consumers, Wells Fargo & Co.
WFC,
said mortgage originations fell 70% from the year-ago quarter, and 18% from the previous quarter.
The bank continues to reduce head count in its mortgage banking unit.
In its auto-lending business, Wells Fargo reported loan spread compression and said revenue declined 15% from the year-ago quarter as consumers paid down their balances.
Auto-loan origination volume fell 24%, reflecting credit-tightening actions as well as continued price competition, as its mix of business continued to shift towards higher FICO score customers.
For its part, JPMorgan Chase signaled a cautious environment as geopolitics in Israel and Ukraine, as well as a new Speaker in the U.S. House of Representatives, turn attention away from Wall Street at the moment.
Also read: Jamie Dimon says it’s ‘the most dangerous time the world has seen in decades.’ Here are all the ripple effects.
The bank increased its outlook for 2023 net interest income by $1.5 billion to $88.5 billion. In the previous quarter, it boosted its outlook by $6 billion to $87 billion.
While some of the metrics have been pointing to more cautious spending by U.S. consumers, JPMorgan Chase and other banks said most levels are just returning to levels seen before the COVID-19 pandemic. The banks refer to this trend as “normalization.”
“Cash buffers continued to normalize to pre-pandemic levels, with lower-income groups normalizing faster,” JPMorgan Chase said.
Outstanding credit card balances rose 16% from the year-ago period as JPMorgan Chase added accounts, while credit trends normalized.
The bank’s auto loan origination managed to gain market share, however. Overall auto originations rose 36% to $10.2 billion “as competitors pulled back,” the bank said.
Also read: Mortgage bankers expect the 30-year rate to drop to 6.1% by the end of 2024
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