In 2022, the world of U.S. banking got weird.

Four big names unveiled their full-year results Friday, led by JPMorgan Chase, and amid all the global macroeconomic fog the base story remains very familiar: Consumers are doing fine even as financial markets and investment bankers are stumbling through a waking nightmare. Investors can be forgiven for being unsure what to make of it all.

Labor markets are robust and ordinary folk are still happily spending on holidays and entertainment — maybe not quite at the same pace as in late 2021, but credit card use remains healthy and losses on lending lower than long-term norms.

JPMorgan, Bank of America, Citigroup and Wells Fargo all put more money aside to cover a potential pickup in bad debts, but perversely this was as much about consumer confidence as it was about recession worries. Why? Because it was driven by growth in credit card borrowing among people out buying fun things.

When COVID struck, people stopped spending money and paid down debt while stuck at home for months on end. The recovery in lending has been slow. JPMorgan’s total credit card balances finally got back to pre-pandemic levels in 2022, Bank of America and Wells Fargo are still rebuilding.

There’s an extra wrinkle that is making earnings numbers hard for investors and analysts to get their heads around: a change in how banks have to account for credit risk that was introduced last year, which means more losses are front-loaded.

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The upshot, if you make more loans, you immediately need to book more provisions for bad debts. Of course, the economy is expected to deteriorate as well, and bank executives said their outlook had worsened slightly, but they are still mainly expecting only a mild downturn later this year.

For example, Mark Mason, Citigroup’s finance chief, said on a call with reporters that a soft landing for the U.S. economy was “very manageable.”

Loss rates on U.S. credit cards have risen at all the banks, but remain below levels that were normal before the pandemic struck. For Citi-branded cards, losses in the final quarter were 1.7% of total balances versus the 3.75% that was normal pre-pandemic, Mason said. At JPMorgan, they were 1.5% for the full year of 2022, versus 3.1% for 2019. At Bank of America they were 1.6% for 2022 versus 3.1%. And so on.

These numbers will worsen, but none of the banks is currently expecting them to accelerate much beyond what used to be normal. “Currently” is the key word, however. As Jeremy Barnum, JPMorgan’s finance chief said at the end of his presentation to investors: “I’ve emphasized the uncertainty.”

Meanwhile, the benefit of lending more as interest rates rise is booming revenue: JPMorgan and Wells Fargo both reported near 50% growth in net interest income for the fourth quarter over the prior year.

The rest of the numbers were much as expected for the fourth quarter and full year across the banks. Bond and currency trading blew the roof off: Bank of America had its best fourth quarter revenue ever and its best full year since 2010. Trading of stocks was flat to slightly down. Investment banking fees for deal advice and fundraisings was a washout — down nearly 60% in the fourth quarter versus the previous year at JPMorgan and Citigroup.

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The less expected dark spot in some of these results though was losses on investments for the future. Wells Fargo booked a $1 billion writedown in the value of its own portfolio of venture capital investments, primarily software companies. JPMorgan has had an accident of its own with the $175 million deal for Frank, a student finance business bought in 2021 that it now says was a fraud. CEO Jamie Dimon said he would talk more about that foul-up when litigation arising from the takeover was finished. The bank declined to discuss how much it lost on the deal, but it’s already written down some of the cost and had not yet handed over the full payment. It might also win its case, especially given the evidence it has presented in its lawsuit, as detailed by my Bloomberg Opinion colleague Matt Levine.

Goldman Sachs on Friday also released some ugly historic numbers on its own costly forays into new digital and consumer-focused banking ahead of results next week.

But away from the technology fumbles and the general economic fears and woes we all read about every day, the story of U.S. banking is still quite good. JPMorgan and Bank of America both turned in better profits than expected and Dimon expects to restart share buybacks sooner than expected. Weird, right?

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. 


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