Questions in quarterly earnings calls bore into major banks’ outlook for the economy. Leaders responded with carefully worded candor, even when they didn’t entirely agree.
“Unprecedented” hardly does justice to today’s economic mood , but securities analysts’ basic questions to a cross-section of leaders of major banks has been: What do you see coming?
Here’s a sampling of what bank officials from JPMorgan Chase, Bank of America, Citigroup, U.S. Bank, Wells Fargo, PNC and Capital One told them.
1. Tariffs Uncertainty Is Creating Inertia Among Many Business Customers
Among the seven banks’ comments about the Trump administration’s tariffs, analysts heard caution, concern and, here and there, a tiny bit of optimism. The latter came from the hopes of some that at the other side of the tariff melee the U.S. will find an improved trade picture. In one case, at Capital One, officials suggested that even negative effects could also produce positive ripples.
Between the lines, there appeared to be a sense that officials were picking their words carefully concerning the frequently evolving tariff reboot.
Jeremy Barnum, CFO at JPMorgan Chase, said the company had “done some soundings” on both the consumer and commercial sides. Consumers appeared to have frontloaded spending in anticipation of rising prices. He said the country is in a transition period and that with “elevated uncertainty, you might see some distortions in the data that make it hard to draw larger conclusions.”
On the business side, Barnum said, corporate clients have had a wait-and-see attitude — but they aren’t idling. Many have been working on plans for optimizing their supply chains and framing responses to tariff changes. Smaller companies however “are probably a bit more challenged,” he said.
Chairman and CEO Jamie Dimon said “pro-growth is good, pro-business is good, pro-dereg is good ” — if that’s what’s on the other side of the current uncertainty. He said the best thing to do is to allow Treasury Secretary Scott Bessent and other key players in the administration to “finish as quickly as possible the agreements that they need to make around tariffs and with our trading partners.”
Chase officials made multiple references to needing to be a source of strength for customers in the tougher economic environment that appears to be coming. Dimon expressed hope that there will be more clarity in the economy by the time second quarter earnings calls begin.
Dimon also acknowledged that Chase, which is intimately tied up in other countries’ economies, would see some fallout from the final form of the tariff revamp.
“We’re deeply embedded in these other countries,” said Dimon. “But I do think some clients or some countries will feel differently about American banks, and we’ll just have to deal with that.”
Trumpenomics Sets Multiple Challenges in Motion
At Citigroup, CEO Jane Fraser said that while some deals have continued among larger corporations Citi serves, “most clients are pausing their plans. No one is taking bets in the market right now. We’re seeing them prep for more headwinds.” She noted that the bank’s clients are generally larger and not “the smaller companies in the mid-market that are going to get more pummeled in this type of environment.”
She also reminded analysts that the administration’s goals go beyond tariffs, to include facets such as deregulation for both banks and other types of companies.
“It’s a very big agenda,” said Fraser.
“Most clients are pausing their plans. No one is taking bets in the market right now. We’re seeing them prep for more headwinds.”
— Jane Fraser, Citigroup
At Wells Fargo, Charles Scharf, CEO, said the result of policies adopted in this period will depend on multiple factors, including timing. “Though we have heard a great deal from our clients as they work through this transitory environment, we have not seen an impact on their condition yet,” Scharf said.
“Business hasn’t come to a halt in any way at this point, but people are certainly taking stock of what it means, figuring out where to sit and wait and where to continue to move forward,” said Scharf. He said hope for positives from the broad Trump agenda seemed to make people feel “cautious in the shorter-term, but probably bullish for the longer term.”
Gunjan Kedia, president and CEO at U.S. Bank as of mid-April, said the bank was working to get a firm idea of how each business customer would be affected by the new trade picture.
“Each client is going to have a different supply-chain and different unique circumstances,” said Kedia. “It’s really about understanding the portfolio and getting ready.”
A frequent question for leaders from analysts: What impact are you seeing on businesses’ use of credit lines?
Nothing happens in a vacuum. Brian Moynihan, chair and CEO at Bank of America, said that business customers were at a point where consideration of tariffs could produce effects of their own.
“They’re basically sanguine on the current environment, but they’re worried about how this will affect their businesses and where they should invest,” said Moynihan. “That’s slowing down some parts of their decision path right now.” He said they are trying to determine if they can pass price increases to buyers, how plans for growth may change, and whether purchases of equipment are appropriate. He said this has “muted” usage of credit lines.
Moynihan says a key concern is “once they talk themselves into slowing down, it will be a while until they get restarted.”
He noted that while the bank’s investment banking business has a “healthy pipeline,” customers are waiting to more clarity on trade and regulatory policy before pulling the trigger on deals.
William Demchak, chairman and CEO at PNC Financial Services Group, noted that credit line usage has picked up. Line utilization has come up in PNC briefings before and Demchak has said reasons can be hard to discern. However …
“In all of the dialogue that I’ve had with clients, nobody is saying they’re purposefully building inventory in advance of the tariffs,” said Demchak. “Having said that, most of our lines finance working capital. So, almost by definitionally, there’s some inventory build going on.”
2. So Far, Consumers Seem Resilient, Although They Are Spending Differently
As previewed earlier, at Capital One Richard Fairbank, chairman and CEO, saw two sides to the impact of tariffs on the consumer lending sector. He specifically applied this to auto lending, a major Capital One activity.
Fairbank said that rising production costs resulting from tariffs would disrupt vehicle values.
“How would higher vehicle prices impact our auto business? They would actually support the credit performance of our back book by improving equity positions for borrowers and increasing the recovery rates,” said Fairbank. However, the flip side of that is that the sudden removal of tariffs could cause vehicle values to drop abruptly. That would adversely impact auto credit, he said.
That said, he added that “for new originations, higher vehicle prices would be a headwind both in terms of consumer demand and in terms of credit.”
“Some retailers may say that their sales are slower, and others are picking up, and it really reflects the change in consumer spending behaviour. But in the aggregate, the consumer keeps pushing money into the economy.”
— Brian Moynihan, Bank of America
Analysts and officials spent a fair amount of time in briefings looking at the strength of the consumer, often specifically talking about credit card spending and performance.
“Some retailers may say that their sales are slower, and others are picking up, and it really reflects the change in consumer spending behaviour,” said BofA’s Moynihan. “But in the aggregate, the consumer keeps pushing money into the economy.”
During his presentation, Alistair Borthwick, BofA CFO, noted that the bank has been steadily moving a greater percentage of its consumer lending into secured credit forms. “Card is really our only consumer unsecured exposure in the portfolio,” the CFO said.
Borthwick also noted that the bank has been making “a concentrated effort to focus on our relationship loans rather than loans as a product — and deepen those relationships with the highest-quality prime credit customers.”
Citi’s Fraser said consumers were being “resilient and discerning” in their spending. “We’ve seen a shift towards essentials and away from travel and entertainment,” she said. Capital One’s Fairbank also said there has been a falloff in travel and entertainment spending, notably airfares.
“We are watching the downward trend in consumer sentiment, but not seeing that in our spending patterns,” said U.S. Bank’s Gunjan Kedia. “Our mix does tilt towards the more affluent customer and towards non-discretionary everyday spend patterns. So that could be an explanation.”
She added that U.S. Bank is promoting a new lineup of products to attract the “affluent transactor segment” in the interest of producing more fees. The company has been stressing buildup of fee income sources to lessen reliance on interest spread income.
From Wells Fargo’s Scharf: Consumers continue to be resilient, overall. “Debit and credit card spending patterns have remained stable,” he said. “More affluent customers continue to show strength, while less affluent customers show more stress.”
Mike Santomassimo, Wells CFO, said that while the bank has seen no weakness in either the consumer or commercial portfolios, management “made a modest adjustment to reflect the potential economic weakness that could develop.”
What’s Over the Horizon?:
JPMorgan Chase’s Jamie Dimon says the company’s economics team puts the odds of recession at 50-50.
JPMorgan Chase’s Dimon pointed out that retailers have observed weaker spending among lower-income customers, and that his bank’s examination of card spending and spending out of checking accounts supports that.
“But when you take a step back, and you ask, ‘Are we seeing signs of distress in the lower-income segment?’ the answer is no,” said Dimon. In fact, he added, some increases in spending seen in April came from those customers.
Capital One’s Fairbank said that he still sees strong growth opportunities in U.S. card business. He credited continuing strong performance of the portfolio to steps taken in 2020 to account for what he believed were inflated credit scores because of pandemic-era practices and policies.
Source: The Financial Brand
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