The news: The biggest banks in the US released their Q3 earnings over the past few days. Most of the results mirrored Q2 results, but with a less-upbeat outlook for the rest of this year and 2023. Revenue and earnings were up in most cases, beating analysts’ expectations. But the looming recession looks closer than ever, and banks are preparing.
Here are the common themes we saw:
Theme 1: Profits mostly tumbled again
Similar to Q2, US banks saw their profits fall year-over-year in the most recent quarter.
Theme 2: Loan delinquency is low, but loan loss provisions are high
Nearly all banks stated their falling profits were a result of setting aside large sums of money to cover potential losses from loan defaults. But many banks said that the low employment rates have allowed customers and businesses to continue to repay their loans, and currently loan delinquencies are low. The move to set aside credit provisions is fueled by the economic downturn trending toward a recession.
Theme 3: Personal banking boosted revenues, but investment banking took a beating
Increasing interest rates proved to be beneficial for US banks, as interest income drove revenue in Q3. But the downturn in M&A activity and debt and equity financing led to slumping investment banking performance.
It’s noteworthy also that Wells Fargo, which is the biggest mortgage lender of the banks, reported a 52% decrease in mortgage lending revenue. This was due to rising home interest rates and a cooling housing market.
What’s ahead? Bank CEOs touted the robustness of their banks after posting their Q2 earnings, stating their capital reserves were strong and that they were ready to weather the economic downturn. The banks are still in a relatively secure position, but CEOs are now striking a different tone as Q3 earnings are released.
Earnings elsewhere: Goldman Sachs will be the final major bank to report its earnings, and we expect it to touch on similar themes. In the UK, banks are also facing grim economic pressures as rising inflation fuels a cost of living crisis, and a major energy crisis stemming from the war in Ukraine. Keep an eye out for coverage on UK bank earnings as they are released.
Continue reading: Check today’s Payments Innovation Briefing for a deep dive on how credit card volumes impacted US banks’ earnings and more on consumer spending.
This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.