NEW YORK • JPMorgan Chase and Citigroup said they had set aside more money for credit card-lending losses in the third quarter, stoking concerns about consumer indebtedness and overshadowing profits that topped analysts' estimates.
Wall Street has ramped up credit card lending amid a slump in bond trading, but the higher provisions for bad debts fuelled worries about profitability of an already costly business and sent shares in both banks lower.
Provisions for credit losses across JPMorgan rose 14 per cent, with the bank attributing much of that to its credit card business, and 15 per cent at Citi in the quarter, compared with a year ago.
Both banks said on Thursday the increases were a normal part of the credit cycle and did not point to evidence of consumers under stress, but this did not reassure analysts. Said Barclays analyst Jason Goldberg: "Investors are taking exception to both companies adding to their credit card loan reserves."
US banks have spent hundreds of millions attracting consumers to credit cards with offers.
Analysts on Citi's earnings call questioned when the incentives would end and investors would start to see a return.
Referring to promotional offers that can go up to 21 months, chief financial officer John Gersprach told analysts: "Don't freak out. It doesn't mean it's going to be 21 months before we see growth in anything."
At Citi, cost cutting, a unit sale and a gain in investment banking fees helped the fourth-biggest US bank beat Wall Street expectations for both profit and revenue.
JPMorgan, the largest US bank by assets, also topped expectations as loan growth and higher interest rates more than offset a 27 per cent slide in bond trading.
For the past seven years, Wall Street banks have been grappling with low bond market volatility and new regulations that have restricted certain activities and made trading more expensive. Lenders are looking to growth in loans to offset the trading slump.
Hopes are fading that US President Donald Trump will be able to stimulate bond trading activity and boost demand for loans through a yet-to-materialise tax overhaul and loosening in financial regulations.
JPMorgan fared worse last quarter than rival Citi, which reported a 16 per cent decline in bond trading.
JPMorgan's market revenue is likely to drop again in the fourth quarter because the year-ago period was strong, chief financial officer Marianne Lake said in a conference call with analysts.
Executives maintained earlier guidance for full-year net interest income, expenses, charge-offs and loan growth, indicating that they expect JPMorgan's other businesses to continue to offset capital markets pain.