'A resilient American economy': 3 takeaways from big bank earnings

Wall Street is still roaring as Main Street is hanging tough.

The nation's biggest banks just reported first quarter earnings, with Bank of America (BAC) and Morgan Stanley (MS) on Wednesday cementing a profit boost across the nation's largest banks.

"We saw healthy client activity, including solid consumer spending and stable asset quality, indicating a resilient American economy," Bank of America CEO Brian Moynihan said in a statement on Wednesday.

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Those two banks, along with Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), and Wells Fargo (WFC), collectively saw profits increase 12% to $47.3 billion from a year earlier.

During earnings calls, executives pointed to a striking degree of resilience in the US economy and consumer. They also left investors with plenty of reasons not to ignore this year's looming concerns.

The US economy has several tailwinds at its back, "with consumers still earning and spending and businesses still healthy," JPMorgan Chase CEO Jamie Dimon said on Tuesday. "At the same time, there is an increasingly complex set of risks — such as geopolitical tensions and wars, energy price volatility, trade uncertainty, large global fiscal deficits and elevated asset prices."

Here are three takeaways from the results.

Higher gas prices haven't yet hurt consumer spending

Consumer spending remained solid despite greater pressure from rising fuel prices, which the banks attributed to a labor market that's still holding up.

"If you look at gas, it's literally a rather small component of consumer spend," JPMorgan's Dimon told Yahoo Finance on a media call Tuesday when asked why the consumer has remained so resilient in the face of higher energy prices.

Combined debit and credit card spending rose 6% from a year ago at Bank of America, 7% at Wells Fargo, and 9% at JPMorgan in the first quarter. At Citigroup, US customer credit card spending rose 5%.

"It is notable that the client sentiment, especially in the United States, seems quite resilient, considering the amount of uncertainty you have in the situation in the Middle East," JPMorgan CFO Jeremy Barnum said Tuesday. "But obviously that can change quickly."

JPMorgan, Citigroup, and Bank of America each reported a decline in 90-day credit card delinquencies, while Wells Fargo said delinquencies remained flat. Meanwhile, Bank of America and JPMorgan reported setting aside lower credit provisions than in the first quarter of last year, which occurred just after the Trump administration unveiled its sweeping tariff policy.

"It's always going to come back to the broad-based American population,” Bank of America's Moynihan told analysts on Wednesday about the resilience. When US consumers are working, "there's wage growth," he added.

Although banks held up the historically low unemployment rate as a sign of consumer health, some continued to reduce their own headcount during the quarter.

Bank of America dropped its headcount by some 1,073 roles, according to earnings reports, while Wells Fargo, which has regularly thinned its ranks for years, cut its workforce by 4,199. Citigroup eliminated about 2,000 roles as part of its multiyear journey to modernize the bank.

However, JPMorgan and Morgan Stanley added employees in the same period.

Wall Street is plowing ahead

Wall Street banks brought in major hauls in trading and investment banking over the quarter amid the chaos in the first quarter, as the US-Israeli war in Iran sent oil and other commodities surging and pockets of the economy faced worries about AI-driven disruption and private debt.

Revenue across these six institutions rose 17% from a year ago, while dealmaking fees jumped 29%, amounting to $9.34 billion more revenue than they made in the year-ago period.

With signs of future deal demand ahead amid volatile markets and Wall Street's broader returns aided by the Trump administration's push for easing bank capital requirements, Wells Fargo analyst Mike Mayo sees a record year ahead.

Goldman Sachs stood out most this quarter, reporting a 89% jump in merger advisory fees and notching a record haul in stock trading.

The bank also reminded investors of the risks inherent in Wall Street's nonstop growth in recent quarters. Goldman reported a 10% drop in its fixed income, currencies, and commodities trading business, citing "significantly lower" net revenues in interest rate products and mortgages, as well as in credit products.

Dimon 'not particularly worried' about private credit

Big banks sought to ease investor concerns this week around their risk exposure to the private credit industry with new disclosures amounting to $128.2 billion among the country's four largest banks: JPMorgan, Bank of America, Citigroup, and Wells Fargo.

In recent months, a growing number of investors have tried to pull out their money held in private credit funds amid fears that these semi-liquid fixed-income investments, which have more recently become available to retail investors, carry less transparency and some exposure to industries vulnerable to AI-disruption.

The worry is that, like investors, banks carry some exposure too as lenders to these funds. However, banks argue their loans to these funds are protected by collateral, thus less risky than the private credit loans themselves.

Private credit is having an "adolescent moment" where it's being more heavily scrutinized, Morgan Stanley CEO Ted Pick said Wednesday, adding that the asset class has "extraordinary growth potential" over the long term.

"You have to have very large losses in private credit before, at least, it looks like banks are going to get hit," Dimon said Tuesday, emphasizing that a wider credit downturn is a bigger concern.

"It doesn't mean you won't feel some stress and strain, and that you might have to do something about it," he said, "but I'm not particularly worried about it."

David Hollerith covers the financial sector, ranging from the country's biggest banks to regional lenders, private equity firms, and the cryptocurrency space.