TinyChan

Cracks begin to appear at the biggest U.S. banks

Several reported broadly disappointing quarterly earnings this week

ROB COPELAND

For a year, Wall Street's dominant theme has been the so-called K-shaped economy in which the well-to-do have powered financial activity despite lower earners' struggles

This week, the country's largest banks reported a broadly disappointing set of quarterly earnings, marking the first stumble after a yearlong spree of rising markets and softening regulations paid off handsomely for the finance set.

Results at Bank of America Corp. Citigroup Inc. JPMorgan Chase & Co. and Wells Fargo & Co. all fell short of expectations and their shares fell. Troubles ranged from delayed merger deals (JPMorgan) to stubborn expenses (Citi) to questions about the efficacy of artificial-intelligence tools (Bank of America). Banks that do business largely with rich individuals and corporations, such as Goldman Sachs Group Inc. and Morgan Stanley, fared comparatively better.

Results from major lenders are watched because they contain hints about the state of the economy and American consumers.

Wells Fargo chief executive Charles Scharf said his organization had not seen a "meaningful" shift among the customer data it collects, including chequing account flows, direct deposit amounts, overdraft activity and payments. Another Wells Fargo executive described "very consistent activity."

Wells Fargo's quarterly results disappointed for a different reason: lower-than-expected profits, in part because mortgage lending stayed weak in a slow housing market. The bank's stock saw its steepest fall in six months.

For another quarter, Trump ad ministration policies loomed large. This time, the banks were asked about President Donald Trump's threatened 10-per-cent cap on credit card interest rates Although it's not clear how or if Mr. Trump could unilaterally impose that ceiling, bankers mostly argued that charging lower rates would cause them to lend less to riskier borrowers.

Jeremy Barnum, JPMorgan's chief financial officer, was candid about what a cap would mean for the bottom line. "It would obviously be bad for us." he said.

Brian Moynihan, Bank of America's CEO, kicked off 2025 by being publicly dressed down by Mr. Trump in a Davos, Switzer land, interview, and the lender's stock lagged its rivals for much of the year.

On Wednesday, Wall Street analysts repeatedly prodded Mr Moynihan and his chief financial officer during a question-and-answer seesion about why the bank expenses (including head count) remained high despite purported efficiency improvements, as well as its relatively slow pace of growth. Mr Moynihan eventually conceded in response : "You should expect us to get back on a streak." Shares dropped anyway.

Banks are not typically seen as on the cutting edge of technology, and Wall Street has been more eager to lend into the AI boom than to talk specifics about how it may change their own businesses.

Bank of America said its much-promoted 'virtual financial assistant,' nicknamed Erica, was used less than before by customers in the fourth quarter. Executives tempted to argue that this was a sign the bank was doing a better job warding off questions before they even needed to be asked.

Goldman Sachs on Thursday said it was debuting 'a new operating model propelled by artificial intelligence.'

There are reasons for optimism on Wall Street. Investment bank traders took advantage of strong financial markets to bolster profits. AI in mergers and acquisitions is also a boon to dealmakers.

And for all of this week's angst, large bank stocks are up strongly over the past 12 months, even after the recent stumble.