The prospects of recession may be rising, but consumers have not yet received the memo. This is one of the main findings of the second quarter reports of the six largest US banks. With signs of financial pressure and rising interest rates beginning to reflect on banks’ Wall Street operations, retail banking’s core lending and deposit activity is holding up remarkably well. Take Bank of America for example. When it comes to auto loans, home equity products and most importantly credit cards, repayment rates have actually improved compared to a year ago. The net charge off rate in the banking giant’s cards division fell to 1.6% from 2.67% a year ago. Most signs of consumer distress, early to late stage defaults, are less than in 2021. “It’s good to see strong customer activity in checking, consumer investments, and new accounts opening for small businesses,” for Evercore ISI analysts led by Glenn. Shor said in a research note on Monday. “And it is equally good to see an improvement in most asset quality metrics (what bearish?).” A stronger consumer This is an upside result of strong consumer balance sheets that have allowed Bank of America credit card users to increase spending by 17% from a year ago. While some of this is certainly due to the increased prices of essential commodities, it is still a sign that the consumer is holding on as of now. The data points support the thesis that the US economy could pull off a “soft landing,” or that the impending recession could be shallow as the Federal Reserve continues to raise interest rates to combat inflation. Compared to the previous recession, consumers remain strong due to lower unemployment and the impact of pandemic stimulus programs. “It’s a very different environment when you have strong fundamentals,” Bank of America CEO Brian Moynihan told CNBC’s Sarah Eisen on Monday. “Right now, we’re saying we don’t see it.” Trends were broadly similar at JPMorgan Chase, Wells Fargo and Citigroup, the other large US retail banks. For example, at JPMorgan, the card charge-off rate was 1.47% in the second quarter, down from the 2.24% rate a year ago. In banks, loans are rising as consumers increasingly lean on credit cards, deposits are rising despite traditional banks paying nominal interest rates, and higher rates mean banks generate more interest income on their core lending activities. starting to receive. At Bank of America, net interest income rose 22% to $12.4 billion in the second quarter. Management revealed on Monday that that figure could increase by $900 million to $1 billion in the third and fourth quarters. Some of their progress hides the fact that banks have started setting aside more money for potential future loan defaults as the economic outlook eases. (Accounting rules dictate that as banks extend more credit card loans and other types of debt, companies reserve early for the possibility of default. If bad debts never develop, the money is the bottom line. Back to The resulting swing was significant. Still, the KBW Bank index is down nearly 20% this year and shares of banks, including JP Morgan, recently touched 52-week lows. This is because of the increased risk of a US recession. While Moynihan has been relatively optimistic about the economy, rival bank CEO Jamie Dimon has raised flags about a potential economic “storm” that could develop thanks to central banks’ actions, the Ukraine war and volatile commodity prices. Signs of Financial Pressure Banks are beginning to show signs of financial stress. Wells Fargo said “market conditions” forced it to post a $576 million loss on equity holdings and JPMorgan disclosed a $257 million write-down on bridge loans for leveraged buyout clients. Strong consumer banking results certainly contrast with mixed Wall Street numbers as a pandemic-fueled deals boom. For example, at Morgan Stanley, investment banking revenue fell 55% in the second quarter, and the bank generated $400 million in revenue below analysts’ expectations. The story was similar among competitors including Goldman Sachs and JPMorgan. Some banks, notably Goldman and Citigroup, offset slower deal volume with better-than-expected bond trading revenue as traders were able to monetize higher volatility in debt instruments, commodities and currencies. But the business is notoriously fickle, and many banks are reining in the amount of capital devoted to the business to help them hit the new regulatory hurdles. It remains to be seen how long the US consumer can hold out. Even Bank of America’s Moynihan noted that his research department now believes the US is headed for a “mild” recession later this year that will boost the unemployment rate. “What they worry about is that as the Fed does its job, you’re going to have a higher and higher chance that we’ll get into a recession,” Moynihan said. “It doesn’t feel good because the economy is slowing down.”