Investors boosted shares of JPMorgan Chase ( JPM ) and Wells Fargo ( WFC ) on Friday after third-quarter results looked better than feared.
A JPMorgan executive was even willing to link the bank’s performance to that soft landing, citing the strength of the lender’s consumer and corporate clients. An economy in which inflation declines without causing a recession achieves a soft landing.
The bank’s CFO Jeremy Barnum told reporters: “Broadly, I would say these earnings are consistent with the soft landing profile. Companies are optimistic that it’s “very consistent with this sort of Goldilocks economic situation,” he added.
Profits at JPMorgan and Wells Fargo fell 2% and 11%, respectively, from last year, but those declines were less than Wall Street had expected.
And they both benefited from a big uptick in investment banking as a two-year deal drought comes to an end. Investment banking fees at Wells Fargo rose 37% from a year ago, while at JPMorgan they rose 31%.
Shares of JPMorgan rose more than 4% in early trading on Friday, while shares of Wells Fargo were up more than 5%.
The results kicked off the third-quarter earnings season as lenders face questions about how the new Federal Reserve interest rate cut cycle will affect the biggest U.S. banks next year.
Their rivals Citigroup ( C ), Bank of America ( BAC ), Goldman Sachs ( GS ) and Morgan Stanley ( MS ) are scheduled to announce their results next week. All their shares rose on Friday.
A positive surprise for analysts in JP Morgan’s results was that a key measure of loan profit, known as net interest income, increased in the third quarter. The bank raised its estimate of how much net interest income it should generate for the full year by $1.5 billion.
However, debt problems are expected to increase. Its provisions for credit losses rose 125% to $3.1 billion from last year, due to the increasing challenges for customers, especially those with credit cards.
But Barnum said it reflects a return to more normal credit patterns, as opposed to new weaknesses. The US consumer, he said, is in a “stronger position” and spending patterns “look normal”.
Mike Santomassimo, Wells Fargo’s CFO, said lower-income consumers are “more stressed and more stretched in terms of their spending and borrowing” but “we don’t see that same stress migrating significantly to other customers.”
Wells Fargo’s net interest income, which measures the difference between what banks make on loans and what they pay on deposits, fell 11% from a year earlier. It is a sign that it is now struggling further with the effect of higher interest rates.
It also did not change the estimate of how much the NII would fall for the full year (about 9%).
“I think positively when you see the fourth quarter align with the third quarter,” Santomassimo added. “So now for the first time we’ve seen the beginnings of NII’s trough.”
JPMorgan made clear that its net interest income will fall next year as the Fed cuts interest rates, telling analysts on Friday that it would be $87 billion short of the consensus analyst estimate, without giving a specific number.
“It still looks a little toppy, but it’s definitely in the ballpark,” Barnum said.
JPMorgan CEO Jamie Dimon said his bank “reported strong underlying business and financial results in the third quarter,” but he highlighted geopolitical concerns, saying “recent events show conditions are treacherous and worsening.”
“Inflation is slowing and the U.S. economy is resilient,” he said, but “many pressing issues remain, including large fiscal deficits, infrastructure needs, the realignment of trade and the realignment of the world.”
“We hope for the best, and these events and the prevailing uncertainty demonstrate why we must be prepared for any situation.”
David Hollerith is a senior reporter at Yahoo Finance, covering banking, crypto and other areas of finance.
Click here for an in-depth analysis of the latest stock market news and events that move stock prices.
Read the latest financial and business news from Yahoo Finance
