Dimon's 'Dangerous' World

There was one, big scary thought on Friday from the fearless leader of JPMorgan Chase & Co.: “This may be the most dangerous time the world has seen in decades.”

Jamie Dimon’s words to investors were dire, but don’t confuse his caution about the future with current economic realities. Because, for all the doomsday fears, the banks are minting money—and they’re saying they expect to make even more of it. JPMorgan just told investors (for the fourth time this year!) that it’s raising expectations for net interest income.

JPMorgan acquired First Republic Bank in May, so it has taken on more clients. But its success goes beyond that. Credit extended to customers has grown meaningfully, showing that fortress JPMorgan is willing to take on some risk while lending. It’s not alone: Wells Fargo & Co., which is more exposed to weaker markets such as home loans and auto lending, said it expects more profit from lending this year than the bank initially thought.

Bank stocks have been downtrodden in part because investors have been terrified that things could get worse. (JPMorgan has been the big exception; it’s the only one of the “Big Six” whose stock is up this year.) The three big banks that reported results on Friday morning, including Citigroup Inc., booked about $4 billion for loans going sour—more than $1 billion less in writedowns than what Wall Street analysts expected.

Dimon said in a statement that JPMorgan acknowledges, “These results benefit from our over-earning on both net interest income and below normal credit costs,” which are code words for: Things could be less incredible as they are today. Here’s his fuller warning:

US consumers and businesses generally remain healthy, although, consumers are spending down their excess cash buffers. However, persistently tight labor markets as well as extremely high government debt levels with the largest peacetime fiscal deficits ever are increasing the risks that inflation remains elevated and that interest rates rise further from here. …

Volatile markets, however, can beget big profits for big banks. JPMorgan’s profit beat expectations, as did Citigroup’s. That’s partly because trading profits at fixed-income businesses topped Wall Street expectations. Interest rates and currencies around the world have whipsawed thanks to central bank interest-rate hikes, persistent inflation and geopolitical tensions. Those forces could keep the money coming in.

But if things get too tough, markets seize up and turn for the worse. That’s the ultimate concern for bankers.

Goldman, Bank of America

Goldman Sachs on Tuesday will report its third-quarter results, and eyes are on a few things: Can its massive trading desk, which has put up stunning numbers in recent years, keep winning off the market’s volatility in currencies and commodities? Will it beat its rival Morgan Stanley in the equities business?

What’s more, Goldman said this week that it has (finally) struck a deal to sell its GreenSky unit, a lending business that it bought last year for $1.7 billion. The deal will wipe off 19 cents from Goldman’s earnings, which sounds somewhat painful but also significantly turns the page for the bank that’s been pivoting away from its big consumer strategy.

There’s an irony to the sale. An asset manager named Sixth Street Partners led the consortium to buy GreenSky. Sixth Street is chock-full of Goldman alumni, including the bank’s former finance chief. Private asset giant KKR and BayView Asset Management are among firms that joined the deal.

Elsewhere, investors are watching results from Bank of America on Tuesday. The stock has been pressured more than any of the Big Six this year, down almost 20%. Don’t miss this story by Bloomberg’s Katherine Doherty on how the lender miscalculated a surge in interest rates, and how that has weighed on profits: Bank of America Interest Rate Blunder Hurts Moynihan Growth Pledge .

More to Come

As always, you can find this newsletter online , and here's where you can sign up for Bw Daily for which I write every Friday. It's another busy week of bank earnings ahead -- though this weekend, I'm headed to Los Angeles to interview some big names in investing including Todd Boehly at the CAIS Alternative Investment Summit next week . I will send a dispatch. Wednesday, upon my return, we're speaking with Carlyle's Jason Thomas. Friday, I'll have an interview with Blackstone COO & President Jonathan Gray as his firm kicks off results for the big private asset managers.

AND SOME PROGRAMMING NEWS! Today, I start anchoring Bloomberg Television's Real Yield, every Friday at 1:00 p.m. New York time. I hope you'll end the week with me, every week, to talk about the market that underpins all markets. Tips, opinions, thoughts and ideas are very welcome at [email protected] .