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 WSJ.com 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
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
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
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
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 firstname.lastname@example.org, Liz Hoffman at
email@example.com 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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