Despite mounting worries over inflation, just-released bank earnings painted a resilient picture of the US economy and consumers, generating talk that any recession might be milder than earlier downturns.
Reports from six US banking giants showed a significant drop in profits from the heady year-ago period, with most of the group establishing fresh provisions in case of defaults.
Executives expressed caution about what is to come in light of the growing hit from higher gasoline and food prices, along with the burden of increased lending costs following several US Federal Reserve interest rate hikes and persistent supply chain problems.
Photo: AFP
However, banks still have not seen a significant rise in charge-offs from bad loans. They say many households still have a buffer of savings after conserving funds during the height of the COVID-19 pandemic when the federal government had generous relief programs.
Citigroup Inc chief financial officer Jane Fraser noted “sharply lower” consumer confidence compared with earlier in the year.
“That said, while sentiment has shifted, little of the data I see tells me the US is on the cusp of a recession,” Fraser said on Friday, adding that household savings provided “a cushion for future stress” amid a tight job market.
Fraser contrasted the backdrop in the US with Europe, where vulnerability to Russian energy could make for a “difficult winter.”
Executives acknowledged that the rising price of fuel and other essential goods poses burden to low-income households who are cutting back. However, most of the bank’s clients are not in this situation now.
“US consumers remain quite resilient,” Bank of America Corp chief executive officer Brian Moynihan said on Monday. “Consumers continue to spend at a healthy pace even as some time has passed since the receipt of any stimulus.”
JPMorgan Chase & Co chief executive officer Jamie Dimon described consumers as “in great shape,” which means that even if there is a recession, they are entering it in “far better shape” compared with 2008 or 2009.
On Monday, Bank of America reported US$6.2 billion in second-quarter profits, a 34 percent drop compared with a year earlier, when results were lifted by a large reserve release amid a strengthening macroeconomic backdrop.
In spite of weakness in some parts of the business, results were boosted by higher net interest income following Fed rate hikes. Bank of America also enjoyed growth in overall loans and pointed to “improvement” in overall asset quality.
At Goldman Sachs Group Inc — the final of the US banking giants to report — profits fell 48 percent to US$2.8 billion, again due in part to its decision to set aside US$667 million in provisions for credit losses.
Operations were mixed, with a big jump in revenues tied to trading amid volatile markets offsetting the hit from a drop in revenues connected to mergers and acquisition advising and loan underwriting. The reports came on the heels of similar releases last week from JPMorgan Chase, Citigroup, Morgan Stanley and Wells Fargo & Co.
Stuart Plesser, a senior director at S&P Global Ratings, described the industry’s overall tone as muted.
“They’re not saying anything’s disastrous, they’re not optimistic, either,” Plesser said.
“If you read the news, you got this possibility with inflation, the higher rate increases and all the other issues, but you can’t point to anything in the results,” he added.
REGIONAL COMPETITION: Over the past few years the Philippines has lost ground to neighbors such as Vietnam, Indonesia and Malaysia, a Philippine official said The Philippines is trying to enlist Taiwanese chip giants to expand in semiconductors, a bid to catch up with its neighbors who are emerging as significant suppliers in the industry. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電) are among companies the Philippines is reaching out to as it seeks equipment and expertise to build out chip fabrication operations, said Dan Lachica, head of the Southeast Asian country’s main electronics industry group, the Semiconductor and Electronics Industries in the Philippines Foundation Inc (SEIPI). The association is working with Philippine officials in Taiwan to talk with potential
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) halted shipments to a customer this month after its semiconductors were sent to China’s Huawei Technologies Co (華為), potentially breaching US sanctions, a government official said. The US slapped sanctions on Huawei in 2019, and expanded them the following year, over fears its technology could be used for Beijing’s espionage operations. The restrictions prevent TSMC from selling semiconductors to Huawei. However, TSMC discovered on Oct. 11 that chips made for a “specific customer” had ended up with the Chinese company, a Taiwanese official with knowledge of the incident said on the condition of anonymity. TSMC “immediately activated
Nvidia Corp is set to unveil investment plans for Thailand, joining Alphabet Inc and Microsoft Corp, as Southeast Asia becomes a hot spot for building artificial intelligence (AI) data centers and manufacturing the components that power them. The US chip designing firm would announce investments during chief executive officer Jensen Huang’s (黃仁勳) trip to Bangkok in December, Thai Minister of Commerce Pichai Naripthaphan said on Monday. He declined to give details on the investment or how much the company would bring into Thailand. The investment by Nvidia could lead to more funding “with related clusters following suit,” Pichai said. Clinching
Powerchip Semiconductor Manufacturing Corp (力積電) yesterday said it had terminated a deal with SBI Holdings Inc to help build a chip manufacturing plant in Japan, as Powerchip found it unpractical to take the full responsibility of operating a plant it does not own for more than 10 years. Powerchip, Taiwan’s third-largest contract chipmaker, inked a non-binding memorandum of understanding (MOU) with SBI in July last year to explore the possibility of building a 12-inch chip fab in Japan. According to the MOU, Powerchip’s role was that of a technology provider, as the company hopes to generate a new revenue stream,