Major US banks brace for a downturn in the economy

With information from AFP

The great banks of USA, after the increase in rates and market volatility, had solid results in the last quarter of 2022. However, for these months they foresee a deterioration in the economy. In addition, they have set aside money to deal with possible defaults by their clients.

In that line, JPMorgan Chase —one of the largest banks in the US— considered that the most likely scenario, starting in the fourth quarter of 2023, it is a “moderate recession”, while Citigroup Y Bank of America they have mentioned a “deterioration” of prospects. For his part, Wells Fargo projected a “less favorable” economic environment.

Given this scenario, financial institutions raised their reserves to deal with the possible eventuality that their clients cannot pay their debts. In total, there were 1.4 billion dollars in the case of JPMorgan Chase, 640 million for Citigroup, 403 million for Bank of America and 397 million for Wells Fargo.

Despite this, in the last quarter of the previous year they continued to obtain profits, although in some cases they were lower compared to 2021. Likewise, net profit increased in the fourth quarter 6% to US$11,000 million for JPMorgan and 2% to US$ 6.900 million for Bank of America.

Instead, it fell 21% to $2.5 billion for Citigroup and 50% to $2.9 billion for Wells Fargo.

perspectives

It should be noted that the US economy “currently it remains strong, with consumers continuing to spend their money and healthy businesses”, estimated the number one of JPMorgan, Jamie Dimon.

However, there is still uncertainty about the “ultimate effects” of geopolitical tensions, such as the war in Ukraine, the vulnerability of energy and food markets, inflation and the benchmark rate hike initiated by the US central bank, it added. . This is how he maintains a “vigilant” posture and prepares himself “for everything”.

With the exception of Wells Fargo, the business volume of the large US banks grew, in particular thanks to the increase in interest income, driven, in turn, by the increase in rates started in 2022 by the Fed in order to put stop high inflation.

However, the rise in rates also has negative effects, such as dissuading some households from embarking on the purchase of a property. Thus, the banks’ activities in the financial markets, which were particularly turbulent in the fourth quarter, held up well.