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Bank Earnings Flag Deteriorating, But Still Healthy Consumer

Macro takeaways from the bank earnings releases so far:Bank of America: Total consumer net charge-off rate rising to 0.5%, however this is still below the post-2004 average of 1.6% (during GFC this rose to a high of 6.0%).
  • Residential mortgage originations dropped for a fifth consecutive quarter, at $5.2bln. Down from $23bln for the same period last year. Average FICO score dropped on the year to 768 from 774.

JP Morgan: Debit and credit card sales were up 9%, while card loans were up 19%. Global Investment Banking fees were down significantly in a challenging environment.

  • Consumers still spending excess cash and businesses healthy. However, still do not know the ultimate effect of the headwinds coming from geopolitical tensions, vulnerable state of energy and foods, persistent inflation and quantitative tightening.
  • The net reserve build driven by a modest deterioration in the Firm’s macroeconomic outlook, now reflecting a mild recession in the central case.

Wells Fargo: Customers have remained resilient with deposit balances, consumer spending, and credit quality still stronger than pre-pandemic levels.

  • Home Lending was down 57% on lower mortgage banking income driven by lower originations and gain on sale margins,
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