STORY: Wall Street's biggest banks kicked off the fourth-quarter earnings season with cautious outlooks on Friday, saying they stockpiled more rainy-day funds to be ready for a possible recession ahead, setting aside a total of roughly $4 billion to prepare for soured loans.
JPMorgan Chase and Bank of America reported quarterly profit that beat estimates, while profit at Wells Fargo and Citigroup fell short of forecasts.
But Reuters U.S. Finance Editor Lananh Nguyen said it was the notes of caution about the U.S. economy that had the attention of investors.
"The four banks that reported earnings today were basically in line with expectations of setting up some preparations for a worsening economy this year. So while the banks reported results that were basically decent, what was really important was the commentary from the CEOs today. And the markets were listening for any sense that they were seeing worsening figures in their businesses or any trouble by the U.S. consumers. Right now, it sounds like U.S. consumers are holding up fairly well. They've still got money in their accounts. And a lot of people are still, you know, very well employed. And so there isn't this kind of disastrous, you know, tailing off of the economy in the consumer segment. But what the CEOs did mention was that, you know, they're very careful about what's to come. The outlook is extremely uncertain. And so they're flagging up a lot of these risk factors that could start to affect the economy in the later half of this year."
The risks highlighted by bank executives included geopolitical tensions as well as stubbornly high inflation, which has led to the Federal Reserve's fastest rate hiking cycle since the 1980s to cool demand in the U.S. economy.
JPMorgan Chase CEO Jamie Dimon said U.S. consumers remained healthy but that he didn't yet know the "ultimate effect of the headwinds coming."
Bank of America chief Brian Moynihan also acknowledged a "increasingly slowing economic environment."
"We're hearing the word mild quite a bit and mild recession. You know, that the economic slowdown isn't going to be really, really catastrophic, that it's going to be a, you know, a shallower slowdown. That remains to be seen. And they definitely hedged by saying there are many risk factors that could affect that outlook. But for now, the bank CEOs and executives, they are warning about a more pessimistic scenario, but they're still not, you know, kind of ringing any alarm bells."
Shares of the big banks were higher in afternoon trading, reversing declines in the morning.
Morgan Stanley and Goldman Sachs report earnings next week.