US banks’ profits slide on negative economic expectations

Q3 earnings and profits slid at Wall Street’s biggest banks as they anticipate weaker economy while investment banking was hit hard, but investors saw a small glimpse of light with some banks beating estimates.

Central banks fight inflation which is expected to cause an economic slowdown. Fed raised interest rate from near zero in March to the current range of 3.00% to 3.25% and signaled more increases. JPMorgan Chase & Co, Morgan Stanley, Citigroup Inc and Wells Fargo showed a slide in net income after turbulent markets choked off investment banking activity.

Rising rates tend to buoy bank profits, but the broader risk of an economic downturn sparked by high inflation, supply-chain bottlenecks and the war in Ukraine could weigh on future earnings.

Banks set aside more money in preparation for a hit from a potential economic slowdown. JPMorgan set aside $808 million in reserves, Citi added $370 million to reserves and Wells had a $385 million increase in the allowance for credit losses.

Still, shares of JPMorgan and Wells Fargo gained strongly, up 2.5% and 3.7% respectively while Citi gained 1.2% as the profit falls were not as deep as feared.