US banks warn of pressure on low-income consumers

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Major U.S. banks have warned that low-income customers are showing signs of financial distress just months before the presidential election.

In second-quarter results released Friday, JPMorgan Chase, Citigroup, Wells Fargo and BNY warned that consumers were suffering from lower savings and higher prices.

Government stimulus programs during the COVID-19 pandemic have helped protect Americans from inflation in recent years, but as households spend money, consumer financial health could play a crucial role in the outcome of the presidential election in November.

Consumer sentiment remains “stubbornly subdued” and fell to an eight-month low of 66, according to the latest University of Michigan survey released Friday.

Citigroup’s U.S. consumer lending business, which includes credit cards, saw profits fall 74 percent from a year ago. Consumer spending is slowing overall, with account balances now lower than they were before Covid, said Mark Mason, the bank’s chief financial officer.

He added that American consumers are more cautious than they have been in some time. “We are not seeing the same growth in consumer spending that we have seen in previous quarters. There have been fewer visitors to the retail locations that we work with,” Mason said.

“The general sentiment at the bank is that the consumer is doing well,” said Jeremy Barnum, chief financial officer of JPMorgan Chase, but he noted weakness among less wealthy customers.

“At the lower income level, we start to see a little bit of evidence of some rotation in spending from discretionary to non-discretionary,” he said, noting that “it has traditionally been understood as a sign of weakness.”

Bank of New York CEO Robin Vince warned that “inflation is very painful for a lot of people,” especially those without savings.

“You can see the early signs of this part of the population. [who do not have assets to invest in the stock market] “They have exhausted the reserves they built up during the pandemic and are facing the reality that the overall price level is higher,” Vince said.

JPMorgan, Citi and Wells — three of the four largest U.S. banks by assets — also reported lower lending income, as businesses plateaued after huge gains from the Federal Reserve’s interest-rate hike cycle.

Big banks benefited from their ability to charge higher interest rates on loans, but they did not immediately need to reward depositors with higher interest rates on savings, which would boost profits. But banks are gradually increasing the rates they pay to account holders.

Wells said lending demand had been “tepid” from both retail and corporate customers, and cut its loan profit forecast for the rest of the year.

“When you look beneath the surface and really dig into what’s happening with different consumers, you find that lower-income people are suffering,” said Mike Santomassimo, Wells Bank’s chief financial officer.

The industry’s biggest winner was investment banking, which added to hopes of a sustained rebound in dealmaking activity, with Wall Street managing to get through the quarter much better than Main Street.

JPMorgan said investment banking fees rose 50% to $2.4 billion, even above the guidance the bank gave investors last month. At Citi, investment banking fees rose 60% from a year ago to $853 million in the quarter.

At the bank level, JPMorgan’s profits reached a record high in the second quarter at just over $18 billion, which represents a 25 percent increase from the previous year.

But when one-time effects are excluded, including an $8 billion gain the company made from its stake in credit card company Visa, net income rose less than 1% from a year earlier in the second quarter.

Citigroup said quarterly profit rose 10% from a year earlier to $3.2 billion, driven by investment banking and cost cuts.

The bank, which is undergoing its biggest restructuring in years, cut 8,000 jobs during the quarter.

Wells, which has a smaller investment bank than its rivals, reported a 0.6 percent drop in profit to $4.9 billion, while BNY, which has less exposure to lower-income consumers because of its specialization in money management and custody, beat analysts’ expectations for revenue and net income.

Shares of JPMorgan, Citi and Wells fell in morning trading in New York on Friday, while BNY rose more than 3 percent.