The country’s largest lenders increased their reserves to protect against deteriorating economic conditions this year, after reporting resilient profits for the end of last year.
America’s biggest banks issued warnings on Friday of economic malaise on the horizon, even as some reported better-than-expected profits.
JPMorgan Chase, the nation’s largest bank, raised the risk of a “mild recession” to arrive later this year. Jamie Dimon, the bank’s chief executive who is normally one of the more gregarious Wall Street figureheads, repeatedly demurred from hard-and-fast predictions on a call with reporters.
“We don’t know the future,” he said. “There are all these geopolitical uncertainties which are real, and we have our eyes focused on it. They may go away or they may not.”
Brian Moynihan, Bank of America’s chief executive, also mentioned a “mild recession” as a prospect the bank is planning for. Wells Fargo is preparing for the American economy to “get worse than it’s been over the last few quarters,” said Mike Santomassimo, the bank’s chief financial officer.
JPMorgan set aside more than $1 billion to prepare for the possibility that more borrowers fall behind on their loans. Bank of America, Citigroup and Wells Fargo also each added hundreds of millions of dollars to their cushions against loan losses.
Investors initially recoiled, pushing the banks’ shares down in early trading, before a rally sent them higher in the afternoon. All four banks ended the day in positive territory.
This comes after Mr. Moynihan of Bank of America described 2022 as “one of the best years ever for the bank,” with $7.1 billion in net income for the fourth quarter, up slightly from the previous year and ahead of analysts’ forecasts. JPMorgan also beat expectations, earning a profit of $11 billion last quarter, up 6 percent from a year earlier.
Citigroup’s quarterly profit of $2.5 billion was a fifth smaller than last year, in line with what analysts were predicting.
Wells Fargo’s earnings were dragged down by legal costs and regulatory fines related to its consumer banking violations. The bank reported a fourth-quarter profit of $2.9 billion, down from $5.8 billion a year ago. Last month, the bank agreed to pay billions to settle claims brought by the Consumer Financial Protection Bureau over a variety of misdeeds, including wrongfully repossessing some borrowers’ cars and homes.
Wells Fargo, once the nation’s largest home lender, reduced staff in its mortgage business, which suffered a sharp drop as high borrowing costs have spooking buyers and stalled the housing market.
Nearly seven years after its sham accounts scandal came to light, the bank remains under an asset cap restriction imposed by the Federal Reserve in 2018 that limits its growth. Charles W. Scharf, the bank’s chief executive, described the penalties Wells Fargo paid last quarter as “an important milestone in our work to resolve historical issues.”
Goldman Sachs, which reports earnings next week, on Friday disclosed for the first time that its misbegotten effort to expand into consumer banking had resulted in $3 billion in losses since 2020. The investment bank cut around 3,200 jobs this week.
Investment banking was a sore spot for many banks, with falling markets and rising interest rates leading to a drop in corporate lending and deal-making that cut into banks’ profits. JPMorgan’s investment banking revenue plunged to $1.4 billion in the fourth quarter, down 57 percent from a year earlier, and Bank of America’s fees fell to $1.1 billion, a 54 percent decline.
Jeremy Barnum, JPMorgan’s finance chief, said on a call with analysts that the investment banking division’s pipeline was “relatively robust,” but that closing deals was “very sensitive to market conditions and sentiment about the economic outlook.”
But the bank chiefs generally described consumers as healthy and resilient, with account balances still fattened by pandemic savings. Higher interest rates bolstered profits in consumer units by allowing them to charge more on loans, and defaults on credit cards and other loans remain very low by historical standards.
“The labor market remains strong and holiday spending was better than expected, in part because consumers have been dipping into their savings,” Jane Fraser, the chief executive of Citigroup, said on a call with analysts.
But there has been a visible slowdown, said Mr. Moynihan of Bank of America, as consumer spending — which surged during the earlier stages of the pandemic and has held up despite stubbornly high inflation — edges back toward something more consistent with “the low inflation, 2-percent-growth economy we saw prepandemic.”
The bank anticipates a drop in demand for auto loans, home equity lines and other consumer credit because “people are reading the same headlines we’re all reading, about a recession is coming and they should be careful,” he said.