In an early major test of the effect the Federal Reserve’s big interest rate cut has had on business, the verdict is: mixed.
The split decision came in the latest earnings reports released on Friday by two of the nation’s largest banks, JPMorgan Chase and Wells Fargo. Banks are particularly sensitive to the Fed’s actions on interest rates, which affect how much lenders can charge on deposits and loans, among other factors.
In other words, while the central bank’s outsized cut last month was a relief for consumers jostling for cheaper rates on loans for houses, cars and credit cards, it has been less clear how that will shake out for the lenders who made bumper profits while rates hovered at 20-year highs.
Nonetheless, JPMorgan, the biggest bank in the United States, fared swimmingly, earning nearly $13 billion in profit last quarter. While that was a bit less than in the same period last year, it was still higher than worried analysts had projected. Those concerns were based, in part, by a top JPMorgan executive warning analysts last month that their forecasts were too high.
Wells Fargo earned $5.1 billion last quarter, which was 11 percent less than last year but also better than what analysts had been expecting. The bank earned less on the difference between what it pays out in deposits and what it charges for loans, in part because customers moved their money to other institutions offering higher interest rates on accounts, the bank said.
Wells Fargo also reported a $447 million hit from having to “reposition” some of its investments in bonds, another reflection of the change in interest rates.
The bank’s stock prices rose in premarket trading on Friday, but their future prospects remained uncertain. The famed investor Warren Buffett has been paring his stakes in big banks, selling more than $1 billion worth of stock in Bank of America in recent months, including a slug of shares this week. (That bank reports earnings next week.)
The financial industry’s most vocal leader, JPMorgan’s chief executive, Jamie Dimon, per usual struck a harried note in prepared remarks, describing geopolitical conditions as “treacherous and getting worse.”
Flagging “significant human suffering,” Mr. Dimon added that “the outcome of these situations could have far-reaching effects on both short-term economic outcomes and more importantly on the course of history.”
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