The major US banks, JPMorgan Chase and Wells Fargo made less profit than a year ago last quarter. While the banks are taking advantage of US Federal Reserve rate hikes to contain inflation, they also need to set aside more money for loans that may never be repaid.
This is because the risk of a recession has increased due to higher interest rates.
JPMorgan Chase saw profits fall 17 percent in the third quarter to $9.7 billion (almost 10 billion euros) from 11.7 billion a year earlier. As a result, the bank set aside $808 million in reserves over fears that the rate hikes would cause an economic downturn and outstanding loans will not be repaid. A year ago, $2.1 billion in reserves was released in the same quarter, which the bank had set aside for possible loan losses due to the corona pandemic.
The bank, involved in many business deals between companies, also noted that US companies have become more cautious about international mergers and acquisitions. The lack of activity in this area has led to a decline in fees for advice and IPO assistance. As a result, business revenues fell by 43 percent to $1.7 billion. However, the bank saw total revenue rise to $32.7 billion from $29.7 billion last year.
Wells Fargo also set aside more money in preparation for an economic downturn. As a result, the loan loss provision was increased to $784 million in the quarter, compared to a release of $1.4 billion in reserves a year earlier, as government bailouts helped the economy recover from the pandemic.
Due to the interest rate hikes, higher borrowing costs also affect the demand for mortgages and car loans, which has reduced the bank’s income from those activities. As a result, Wells Fargo’s profits fell to $3.5 billion from $5.1 billion a year ago.
Despite the decline in earnings, both JPMorgan Chase and Wells Fargo outperformed analysts’ expectations. Competitor Morgan Stanley, who also came up with figures, on the other hand, made less profit than experts had foreseen. The investment bank saw the income of its investment branch fall by 55 percent.
