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Big Banks Send Mixed Signals on Economic Outlook


Two more big banks provided updates on the delicate state of the economy on Friday, with one showing signs of trouble and the opposite managing to capitalize on conditions which are hurting its peers.

Wells Fargo reported its second-quarter earnings, revealing a rise in credit loss reserves, write-downs on investments and slowing home loan activity. Citigroup’s second-quarter report showed a few of the same pressures, but it surely managed to generate a much larger profit than analysts were expecting, unlike Wells Fargo and JPMorgan Chase and Morgan Stanley, which released their latest financial results on Thursday.

“Nothing in the info that I see signals that U.S. is on the cusp of recession,” Jane Fraser, Citi chief executive, told analysts on a conference call following the earnings. “While a recession could indeed happen, it is extremely unlikely to be as severe as others now we have seen.” The bank’s stock jumped up greater than 9 percent in early trading, outpacing gains at other banks.

Citi’s latest quarterly profit was down 27 percent from a yr ago, to $4.5 billion, but much better than the market was expecting. Citi’s customers spent 18 percent more within the quarter on their bank cards than they did in the identical period a yr ago. And despite the rise in spending, the share of Citi’s bank card loans that were greater than three months overdue fell barely from a yr ago.

Revenue from its bond and commodities trading business jumped 31 percent. The corporate said its transaction and payment processing division, which is one in all the biggest on this planet, had its best quarter in a decade.

Still, there have been signs of potential trouble ahead. The bank put aside $1.3 billion to cover bad loans, and like JPMorgan, Citi said it will pause stock buybacks. Citi’s fees from advising on mergers in addition to underwriting stock and bond offerings fell nearly 50 percent from the identical period a yr ago.

“We’re apprehensive about inflation; we’re apprehensive about recession; we’re apprehensive about rate increases,” Mark Mason, Citi’s chief financial officer, said on a call with reporters. The bank can also be within the strategy of selling its business in Russia, which Mr. Mason estimated would cost $2 billion.“We’re clear on our technique to exit Russia, and we’re exploring all angles for doing that,” he said.

Wells Fargo announced on Friday that it had earned less within the second quarter than what analysts expected and that the shortfall was due partly to a success of nearly $600 million in its portfolios of enterprise capital and personal equity investments. Mike Santomassimo, the corporate’s chief financial officer, said on a call with reporters that the losses were on investments the corporate had held for years that needed to be assigned lower valuations when the stock market fell.

Wells Fargo earned $3.1 billion for the quarter, 48 percent lower than it had through the same period last yr and 15 percent lower than it had within the previous quarter this yr.

The bank also described a slowing home loan business and lower investment banking fees. It added $580 million to its provision for credit losses, but said its individual and company customers had not yet begun to fall behind on loan payments. Mr. Santomassimo said executives were preparing for a spread of scenarios but were aware that “things will probably worsen.”

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