The outlook for big U.S. banks has been clouded by the Russia-Ukraine conflict and fading economic stimulus measures. Higher borrowing costs as the U.S. Federal Reserve hikes rates have also softened demand for mortgages and car loans.
There were notes of caution about the economic situation.
"The U.S. economy currently remains strong with consumers still spending excess cash and businesses healthy," said Chief Executive Officer Jamie Dimon, although he said he didn't yet know "the ultimate effect of the headwinds coming." The bank flagged a modest deterioration in its macroeconomic outlook, "reflecting a mild recession in the central case".
JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co reported profits ranging from up 6% to down 50%. Strength in trading helped offset a slump in investment banking, while interest rate hikes by the U.S. Federal Reserve helped income.
"Today's bank earnings were solid, with net interest income driving earnings, credit reserves significantly increasing year-over-year, and investment banking fees remaining low - all largely reflecting the interest rate and economic environment," said Peter Torrente, KPMG US National Sector Leader for Banking and Capital Markets.
JPM profit beat estimates, rising 6% on trading strength and said it would resume share buybacks. Bank of America reported a 2% rise in profits as higher rates boosted income. However, Citigroup Inc reported a 21% fall in profits with investment banking taking a hit. Wells Fargo reported profit fell 50% as it racked up $3 billion in costs.
"We ended the year on a strong note, growing earnings year over year in the fourth quarter in an increasingly slowing economic environment," Bank of America's Chief Executive Brian Moynihan said in a statement, describing 2022 as one of the best years for the bank.
Shares were lower in premarket trading. JPMorgan fell nearly 3%, Wells was down 4%, Bank of America was down 3%, Citi was around flat.
The four banks set aside a total of around $4 billion funds to prepare for soured loans: JPM set aside $1.4 billion, Wells Fargo $957 million, Bank of America set aside $1.1 billion and Citi set aside $640 million.
Morgan Stanley and Goldman Sachs follow next week.
Banks have been hit by a slump in mergers, acquisitions and initial public offerings. Global investment banking revenue sank to $15.3 billion in the fourth quarter, down more than 50% from a year-earlier quarter, according to data from Dealogic.
JPMorgan's investment banking unit's poor run continued in the quarter, with revenues down 57% as corporate executives battened down the hatches to prepare for a potential recession instead of spending on deals. Bank of America's investment banking fees more than halved in the quarter.
JPM's trading revenue, however, gained from market volatility as investors repositioned bets to navigate a high interest rate environment.
Meanwhile, consumer businesses were a key focus in banks' results. Household accounts have been propped up for much of the pandemic by a strong job market and government stimulus, and while consumers are generally in good financial shape, more are starting to fall behind on payments.
"The consumer still remains in pretty good shape," said Bank of America's Chief Financial Officer Alastair Borthwick. "There's a lot of pent-up demand," especially for travel, he said.
(Reporting by Saeed Azhar, Lananh Nguyen, Niket Nishant, Noor Zainab Hussain, Carolina Mandl, Manya Saini, Mehnaz Yasmin; Writing by Megan Davies; Editing by Nick Zieminski)
