US banks report solid results but warn of rising recession risk

NEW YORK

Large U.S. banks reported a round of solid quarterly profits on Oct. 14, but cautioned of rising recession risks as the economy absorbs higher inflation and a dramatic shift is central bank policy.

Citing the uncertain economic outlook, JPMorgan Chase set aside $808 million in case of bad loans, while Citigroup reserved for $370 million in potential losses and Wells Fargo, $385 million.

These sums are much smaller than the reserves established at the start of the coronavirus pandemic. But they nonetheless point to a much changed environment from a year ago, when bank results were boosted by large releases of funds that had been set aside for loan defaults that did not materialize.

Today’s litany of worries include stubborn inflation that has prompted significant central bank interest rate hikes; and geopolitical fallout from the Russian invasion of Ukraine, including uncertainty in the oil market and worries about European energy security this winter.

While the U.S. consumer remains “very strong,” these obstacles elevate the risk of a downturn, said JPMorgan Chief Executive Jamie Dimon.

The end result could be “anywhere from a soft landing to a hard recession,” Dimon told reporters on a conference call. “If it is a hard recession, obviously it has implications for unemployment and business and reserves.”

Wells Fargo Chief Executive Charlie Scharf said the bank continues to see “historically low delinquencies,” but that it is “monitoring risks” tied to macroeconomic and geopolitical headwinds.