Cards, mortgages and other consumer units drive earnings as deal fees and trading wane

By David Benoit, Liz Hoffman and Rachel Louise Ensign 

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (July 17, 2019).

U.S. consumers are taking advantage of low interest rates to borrow and spend, boosting banks that cater to Main Street and leaving behind those that don't.

Booming consumer businesses drove quarterly profits higher at JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., while trading and deal fees shrank. Goldman Sachs Group Inc., which lacks a big consumer operation, was the only large U.S. bank to report lower profit in the second quarter than it did a year ago.

The results show American consumers are more upbeat about the economy than businesses and institutional investors. Low unemployment, rising wages and the Federal Reserve's decision to hold interest rates steady prompted consumers to increase their credit-card spending and take out new mortgages.

But signs of slowing global growth, rising trade tensions with China and the prospect that the Fed will lower rates this year have made banks' trading and corporate clients nervous.

"The consumer in the United States is doing fine," JPMorgan Chief Executive James Dimon said on a call with analysts Tuesday morning. "The business sentiment is a little bit worse."

Banks' credit-card customers increased both their spending and borrowing in the quarter. At JPMorgan, card spending rose 11% to $192.5 billion, while balances rose 8% to $157.6 billion. The bank, the largest U.S. lender by assets, said most of the growth was from existing customers rather than new accounts.

At Citigroup, the purchase volume on its nearly 35 million branded credit-card accounts in the U.S. rose 8%, while balances increased 3%. Card purchases and balances rose 6% at Wells Fargo, which has a smaller card business.

"People like their credit cards. They use their credit cards more than they use their debit cards," Mr. Dimon said. "I don't remember the last time I used my debit card."

Mortgage originations rose in the second quarter at JPMorgan and Wells Fargo -- two of the nation's largest home lenders -- as well as at Citigroup. The average rate for a 30-year, fixed-rate mortgage has fallen below 4%, spurring consumers to buy homes and refinance.

Things were tougher for bank operations that help large investors and companies to make trades, raise money and do deals. Executives blamed a series of unnerving headlines, including escalating trade tensions with China and tariff battles with Mexico. Interest-rate cuts began to look likely, reversing investors' expectations that the Fed would continue raising benchmark rates as the economy strengthened.

Growth jitters hit Goldman particularly hard. The bank's quarterly profit fell 6%, with combined revenue from underwriting and debt-trading down twice that much. Corporate borrowers, seeing a Fed rate cut ahead, pulled back on bond offerings.

Investment banks tend to do well when their clients are confident enough about the direction of markets and interest rates to strike mergers, open new plants or put on big positions. Skittish investors and executives tend to hunker down rather than risk a loss.

Goldman's quarterly trading revenue was 3% lower than a year ago, driven by a 13% decline in fixed-income trading, which includes bonds, currencies and other products tied to interest rates and global economic indicators.

The quarter highlighted the urgency of Goldman's pivot toward Main Street businesses. Without the big consumer-banking and lending businesses of its rivals, Goldman still gets most of its profits from investment banking and trading, which are more vulnerable to market twitches.

At JPMorgan, trading revenue declined 6% from a year ago, excluding a one-time gain on the bank's stake in a trading platform. Investment-banking profit fell 8% from a strong year-ago quarter.

The prospect of Fed rate cuts as soon as this month further clouds the outlook. The central bank began raising rates in 2015 at a pace that allowed banks to charge borrowers more while keeping their deposit costs relatively low. A rate cut would leave less room to maneuver, crimping their lending margins.

JPMorgan Chief Financial Officer Jennifer Piepszak said the bank now expects three rate cuts in 2019. When it reported first-quarter results in April, it wasn't predicting any cuts this year.

JPMorgan slightly lowered its expectations for net lending profits for the year to about $57.5 billion from more than $58 billion. Ms. Piepszak said multiple rate cuts could take a greater toll.

The bank's net interest margin -- the spread between what it earns on loans compared with what it pays out for deposits -- fell to 2.49% from the first quarter's 2.57%. At Wells Fargo, it fell to 2.82% from 2.91%.

Net interest margins are expected to keep shrinking. Some banks, including Goldman, already have lowered their deposit rates in anticipation of a Fed cut.

"We're clearly pivoting from an environment where we had predicted...rising rates to this point," Citigroup Chief Executive Michael Corbat told analysts Monday. "From our perspective, we don't believe that the market has made that full adjustment."

--Telis Demos contributed to this article.

Write to David Benoit at, Liz Hoffman at and Rachel Louise Ensign at


(END) Dow Jones Newswires

July 17, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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