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If a recession were to arrive in the United States, there would normally be evidence of pain at America’s biggest lenders. But so far, top banks aren’t seeing major signs of weakness, even as they admit they’re bracing for tougher times ahead.
What’s happening: Results from JPMorgan Chase, Wells Fargo and Citigroup reveal that while Wall Street has been hit hard by the deep market slump, Main Street is humming along. Credit card spending still looks healthy. While banks are putting aside more money to cover bad loans, they aren’t seeing significant problems yet.
“If you didn’t look at anything else — you just looked at the bank numbers — you wouldn’t be thinking there’s a recession around the corner,” Mark Conrad, a portfolio manager at Algebris Investments, told me.
Step back: JPMorgan Chase CEO Jamie Dimon freaked out investors last month when he predicted an economic “hurricane” caused by the war in Ukraine, rising inflation pressures and interest rate hikes from the Federal Reserve.
A plunge in dealmaking has sharply reduced the amount of money investment bankers are bringing in after a blockbuster 2021. Investment banking revenue at JPMorgan fell 61% last quarter. At Morgan Stanley, it dipped 55%.
“That was expected to be a weak spot, and it was,” Stephen Biggar, an analyst at Argus Research, told me. “They just didn’t get many deals closed.”
But elsewhere, activity looked solid. Credit and debit card spending is up 15% year-over-year, JPMorgan said. While consumers are shelling out much more money on gas, travel and dining still jumped a “robust” 34%.
“You can see how resilient the consumer is in the US through the elevated payment rates and the low level of credit losses,” Citi CEO Jane Fraser said on a call with analysts.
There’s also still strong demand among companies for loans, even as executives say their confidence is flagging.
Home lending is one exception. Wells Fargo reported 53% lower revenue from this business compared to the same period last year, while JPMorgan saw a 26% drop.
Mortgage rates have surged as the Federal Reserve has aggressively raised its benchmark rate in a bid to cap soaring prices, eating into demand. The Wall Street Journal is reporting that the Fed is likely to boost rates by three-quarters of a percentage point later this month, lowering expectations that it could pursue an even bigger increase.
Big picture: Broadly, the numbers look solid. Still, that doesn’t mean a recession isn’t possible. The mantra at banks right now is, “hope for the best, prepare for the worst.”
“We know that if you have a recession, losses will go up,” Dimon said. “We prepare for all that.”
JPMorgan, Citi and Wells Fargo announced that they’d put aside billions of dollars to cover bad loans should they need to, while Citi and JPMorgan are pausing share buybacks to conserve cash.
Coming up: Bank of America’s results and commentary from CEO Brian Moynihan will be watched closely to see if it keeps with the trend.
Struggling Boeing pledges better times ahead
Boeing is limping through a rough stretch that has damaged its stock and its reputation as one of America’s mightiest corporate titans.
But as the Farnborough Airshow kicks off on Monday, Boeing’s leadership struck an optimistic tone.
“I’m actually feeling pretty good about the moment,” CEO Dave Calhoun told the Financial Times. “The most difficult of our crises is being managed effectively.”
Remember: The crashes of two of 737 Max jets that killed all 346 people on board the flights led to a crippling 20-month grounding of the plane. It was one of the most expensive corporate blunders in history, costing Boeing in excess of $20 billion. It’s also been forced to delay deliveries of its wide-body 787 Dreamliner due to quality control issues and is pushing back the start of production for its 777X passenger jet.
The company said ahead of the airshow that it’s “very close” to getting the approvals it needs to start Dreamliner deliveries again. It had about 115 of the planes in its inventory at the end of March.
Boeing announced Delta Air Lines ordered 100 of its 737 Max jets on Monday. It’s the biggest order that Delta has placed with Boeing since 2011. Delta is the only major US airline that did not already own a 737 Max.
Investor insight: Boeing could use a win or two. Its shares are down almost 27% year-to-date, while stock in rival Airbus is just 7% lower.
Is gasoline heading back down to $4 a gallon?
Gasoline prices in the United States have dropped back down to an average of $4.52 a gallon after hitting record highs above $5 a gallon one month ago.
The White House is betting they have more room to fall, a positive side effect of global recession fears.
“I expect it to come down more towards $4,” Amos Hochstein, the special presidential coordinator for international energy affairs, said on CBS’ “Face the Nation” on Sunday. “And we already have many gas stations around the country that are below $4.”
Hochstein — who joined President Joe Biden when he visited with Saudi leaders last week — hinted that Gulf states could announce a boost in production in the coming weeks, easing supply constraints.
“Based on what we heard on the trip, I’m pretty confident that we’ll see a few more steps in the coming week,” he said.
But forecasting oil prices for the rest of the year remains a difficult gambit. Europe is hunting for replacements for Russian barrels. If China eases its strict efforts to contain the spread of Covid-19, demand for crude from the world’s biggest importer could jump, further squeezing markets. And it’s not clear countries like Saudi Arabia and the United Arab Emirates will ultimately tap their spare capacity, which is limited.
Watch this space: Global oil prices finished last week at roughly $101 a barrel, 27% below their March high. They remain volatile, however. On Monday, they climbed 2%, rising back above $103 per barrel
Bank of America, Goldman Sachs and Synchrony Financial report results before US markets open. IBM follows after the close.
Also today: The NAHB Housing Market Index for July arrives at 10 a.m. ET.
Coming tomorrow: Earnings from Truist, J.B. Hunt and Netflix.