Banks Are Holding Up as Clients Start to Crack

On the face of it, the banks are making money. A lot of money.

JPMorgan Chase & Co., by one measure, blew past its own goals in the final months of 2022. Its “return on tangible common equity”—a measure of the bank’s profitability—in the fourth quarter was 20%. Its target has been 17%.

But there are signs its clients have started to crack under pressure. JPMorgan built more reserves than Wall Street had expected, reflecting what it sees as a “modest deterioration” in the economy. Its charge-offs also rose, along with Bank of America’s, Citigroup’s and Wells Fargo’s.

As my colleague Jenny Surane put it during Bloomberg’s live coverage today: “Taken together, we’re seeing pretty clear signs from the country’s four largest banks that consumers are borrowing more and increasingly starting to fall behind on their credit card payments.”

Losses from lending aren’t necessarily a bad thing...

“Credit is going to deteriorate. It doesn’t mean we’re going to have a GFC-like scenario,” David George, senior research analyst at Robert W. Baird & Co., said on Bloomberg Television, referring to the global financial crisis. “Banks take risks, and they’re expected to have losses. That is actually part of the business.”

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Who’s News

Morgan Stanley star Jon Pruzan is leaving as chief operating officer after a 28-year run at the bank. He’s been a key deputy to CEO James Gorman. Pruzan is one of a number of top Wall Street executives who’ve been sounded out for the CEO post at Carlyle as the firm seeks to transition, according to the Financial Times. … Soaring fortunes at certain investment firms have buoyed certain stars: Michael Platt has become a bigger billionaire after a 153% surge at his BlueCrest. Michael Klein is expected to lead a nine-figure payday as Credit Suisse nears an agreement that could value Klein’s investment bank at a few hundred million dollars in an acquisition. Other fortunes are more pressured. Barry Silbert wanted to be the Rockefeller of crypto, but now he’s under siege.

More on Wall Street

• Mike Novogratz wants to punch disgraced crypto titans in the face. After his Galaxy Digital lost $700 million in the first nine months of last year, he's gearing up to double down on the industry that's been rattled by fraudulent activity, feuding billionaires and massive price swings.
• A generation of bankers is facing hardship for the first time. Here is how they're navigating it .
• CalPERS, the largest public pension fund in the US, is making a $1 billion wager on upstart private equity firms. Money will be used to take stakes in money managers as well as funds for firms run by women and minorities. We spoke to Nicole Musicco , the chief investment officer, for Bloomberg Television.
• Barry Silbert's Digital Currency Group faces a US investigation over internal transfers, according to people familiar with the matter. The SEC sued Genesis Global Capital, a unit of DCG, and the Winklevoss twins' Gemini for violating securities laws. Here is our breakdown for Bloomberg Television.

More to come. Tune in starting 5:30 a.m. New York time on Tuesday morning -- we'll be covering everything from the results at Goldman and Morgan Stanley, the last of the big six to report in a highly competitive environment for trading, and a deals slump. Goldman has given analysts an update on how its new division -- which houses its consumer businesses -- has fared throughout the last 6 months. That unit expected to post a nearly $2 billion loss for the year, Bloomberg's Sridhar Natarajan reports.

Stay tuned, stay posted. Tips and opinions are welcome at [email protected] .