Large US banks say consumer finances are healthy despite tariffs

U.S. banking giants JPMorgan Chase, Citigroup, and Wells Fargo reported stronger-than-expected second-quarter profits, largely attributed to a rebound in dealmaking and resilient consumer spending. While executives noted the current robust health of consumers, they cautioned about potential weakness ahead, anticipating consumer spending to soften in the second half of the year as the effects of tariffs play through and contribute to rising inflation.

Analysis

Major U.S. banks, including JPMorgan Chase, Citigroup, and Wells Fargo, reported second-quarter profits that exceeded analyst forecasts, buoyed by a recovery in dealmaking and sustained consumer spending. Despite the strong results, executive commentary struck a cautious tone regarding the second half of the year. JPMorgan highlighted current consumer stability by reducing its provision for credit losses by 6.5% year-over-year to $2.85 billion. Similarly, Wells Fargo noted strong repayments in auto loans and credit cards, leading it to reduce charge-offs and provisions for loan losses. However, this optimism is tempered by concerns over the future impact of tariffs on consumer behavior. Citigroup's CFO, Mark Mason, explicitly anticipates a cooling in consumer spending in the latter half of the year as tariff effects materialize. This concern is substantiated by a 0.3% monthly increase in the June Consumer Price Index, the largest in five months. Citigroup's own results showed a divergence, with credit costs rising to $2.9 billion, driven by net credit losses in its U.S. credit card portfolio, signaling a potential area of weakness.

Key Decisions for Investors

• Investors should weigh the sector's strong second-quarter earnings against the cautious forward guidance from bank executives, who anticipate a consumer slowdown in the second half due to tariff impacts.
• It is crucial to differentiate between individual bank performance, as JPMorgan and Wells Fargo demonstrated improving credit metrics while Citigroup reported rising credit costs in its U.S. card portfolio, suggesting varying levels of risk exposure.
• Monitor key macroeconomic indicators, particularly the Consumer Price Index and retail spending data, as bank outlooks are now explicitly tied to the passthrough of tariffs to consumer inflation and behavior.