Big banks post strong Q3 profits, but warn higher rates and inflation could bite

NEW YORK — Wall Street’s biggest banks reported another strong quarter on Tuesday, as the U.S. consumer continues to pay their bills and businesses keep investing heavily in AI.

But even as JPMorgan Chase, Citigroup, Wells Fargo and Goldman Sachs reported higher profits from a year ago, they warned about the long-term impact of higher interest rates as well as the impact higher prices could have on the consumer if inflation is not brought under control.

JPMorgan posted a $15.3 billion profit in the third quarter, or $5.57 a share, up from $14.4 billion or $5.07 a share, in the same period a year earlier. The results missed analysts’ expectations, with Wall Street looking for the bank to earn $5.93 a share.

It was a rare earnings miss for JPMorgan and its CEO, Jamie Dimon. The last time the bank missed analysts’ expectations was nearly three years ago. The investment banking division of JPMorgan was to blame this quarter, as its fixed income trading desks saw a slowdown in activity compared to both earlier this summer as well as last year. Still, shares rose 0.2% in midday trading.

“The U.S. economy continued to be fueled by strong business investment and ongoing consumer spending,” Dimon said in a statement. “However, large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates and geopolitical conditions continue to shift under the surface.”

The big banks typically kick off the quarterly earnings season, and this is a key one for the stock market given that robust corporate profits have helped propel the S&P 500 to record levels. Analysts expect companies in the S&P 500 to deliver overall growth of nearly 30% in earnings per share from a year earlier, according to data provider FactSet. If they’re correct, it would be the third consecutive quarter of growth that exceeds 25%.

Goldman Sachs, whose third-quarter profits rose sharply due to a sharp rise in stock-trading revenue, also reported that its bond trading activity slowed last quarter. The bank posted a profit of $5.29 billion, or $17.01 a share, compared to $4.1 billion, or $12.25 a share, a year earlier. Goldman shares rose 0.6%.

The bond market saw significant levels of volatility and turmoil this summer, as investors became increasingly worried about government spending and inflation. The yield on cornerstone financial instruments like 10-year and 30-year Treasurys rose to levels not seen in years. Higher diesel, technology and food prices gave the Federal Reserve reason to raise interest rates last month, despite pressure from the White House to not do so.

The higher interest rates and election-fueled volatility have made some businesses pause any significant investments until later this year, or early 2027. OpenAI, the owner of ChatGPT, said it plans to delay its initial public offering until next year. That IPO is expected to be an investment banking bonanza for Wall Street, as was the public offering of SpaceX earlier this summer.

Despite the volatility, bank CEOs said they continue to see growth in the economy in the short-to-medium term.

David Solomon, Goldman's CEO, told investors during a call that the rise in bond yields “doesn't scare me.” However, other bank CEOs did point to a slowdown in the housing market, with new mortgage rates being well above 7%.

There were similar statements out of Wells Fargo, which has one of the nation's largest consumer banking franchises, where executives told investors that they see all parts of the bank's business growing, with the exception of mortgage originations.

"While higher interest rates, higher oil prices and persistent inflation create risks to the economy, strong positive forces such as the investment in AI infrastructure, high employment levels and consistent wage growth continue to outweigh the risks,” said Charlie Scharf, Wells' CEO, in a statement.

Citigroup said its third-quarter profits jumped 40% from a year ago, beating Wall Street expectations. The bank posted higher revenue from investment banking and wealth management, while the bank's credit card division profits were flat. Citi shares dipped 3.6%.

Wells Fargo posted a profit of $5.95 billion, or $1.87 a share, beating Wall Street forecasts. The San Francisco-based bank has seen its profits climb steadily in recent quarters after federal bank regulators removed the asset cap that had been imposed for several years after the bank's sales practices scandal nearly a decade ago. Wells shares dropped 1.7%.

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