Bank Earnings Are Sending a Message: The Economy Isn’t That Bad

Management was generally optimistic about the state of their businesses, against the odds.

(Gabby Jones/Bloomberg)

Quarterly report cards from the largest, most systemically important U.S. banks brought investors and consumers welcome news this past week. The message: The economy is faring better than it feels.

Consumers, for one thing, are generally staying on top of their debt. JPMorgan Chase, Bank of America, Citigroup , and Wells Fargo all said their relatively low rates of consumer delinquencies, as well as debt they have written off as unrecoverable, were either about the same or looking better than a year ago.

“While there are nuances around the edges, consumer credit is primarily about the labor market,” JPMorgan Chief Financial Officer Jeremy Barnum told analysts on Tuesday. “In a world with a 4.1% unemployment rate, it’s just going to be hard—especially in our portfolio—to see a lot of weakness.”

That optimism, and the data that warrants it, may surprise some consumers and business owners. After all, the Trump administration has created a widespread sense of uncertainty around international and domestic policy as the U.S. continues to negotiate with trade partners over tariffs.

A lack of clarity ultimately shapes swaths of business and commerce, from the cost of buying groceries to companies’ plans for expansion or layoffs. Indeed, the latest consumer tariffs are starting to show up in U.S. inflation data.

Created with Highcharts 9.0.1A Rising TideBank stocks have been rallying with the stock market this year.Source: FactSet

Created with Highcharts 9.0.1CitigroupGoldman Sachs GroupJPMorgan ChaseWells FargoMorgan StanleyS&P 500 IndexBank of AmericaJan. 2025Feb.MarchAprilMayJuneJuly-30-20-10010203040%

Still, banks’ results painted a pretty healthy picture for big companies and households, at least for now. Executives were upbeat and quick to pin caveats to negative items about credit, as though they wanted to drive the point home: The economy really is doing this well.

When Wells Fargo finance chief Michael Santomassimo told analysts that net loan charge-offs for commercial clients ticked higher from last quarter, he noted losses were “borrower-specific, with little signs of systematic weakness across the portfolio.” At Citigroup, a rise in corporate nonaccrual loans stemmed from an “idiosyncratic downgrade, but remain low,” CFO Mark Mason said.

The bottom lines at the four largest U.S. banks, plus prominent investment banks Goldman Sachs Group and Morgan Stanley , were praised by Wall Street. With the exception of JPMorgan, where profits declined because significant items skewed last year’s comparison, all six lenders posted bigger profit hauls from a year ago. (On an adjusted basis, JPMorgan’s net income increased.)

Banks’ dealmaking during the quarter was brighter than some analysts feared, though the picture was mixed for the industry. Bank of America’s investment banking revenue fell 9% from a year ago—a shallower decline than CEO Brian Moynihan had warned of during an industry conference last month. Momentum “built across the quarter with a good pipeline,” the bank’s chief financial officer, Alastair Borthwick, said on the earnings call.

JPMorgan’s Barnum said his firm’s pipeline “remains robust, and the outlook along with the market tone and sentiment is notably more upbeat.” At crosstown rival Morgan Stanley, “investment banking pipelines are healthy, dialogues are active, and markets have proven resilient,” CFO Sharon Yeshaya said.

Not that stock investors seemed too impressed following a meaningful rally in the group. Shares of JPMorgan, BofA, and others slipped on the day of their results. Wells Fargo, whose stock dropped 5% even after earnings topped estimates, was the most significant decline in the bunch after the bank said net interest income this year would come in lighter than investors hoped for.

Executives, too, signaled they weren’t getting too comfortable, even as the economy hummed along. Wells Fargo and BofA called out weakness in loan portfolios with exposure to commercial real estate—and offices in particular—as the sector still hasn’t recovered from the postpandemic shift to hybrid work arrangements. And Citi CEO Jane Fraser noted she was monitoring tariff effects.

“We expect to see goods prices start to tick up over the summer as tariffs take effect,” Fraser told analysts, “and we have seen pauses in [capital expenditures] and hiring amongst our client base.”

While the environment has been “more resilient than most of us anticipated,” she said “we aren’t dropping our guard” as the second half of 2025 gets under way.

Investors could stand to take a page out of Fraser’s playbook.

Write to Rebecca Ungarino at rebecca.ungarino@barrons.com