Big banks cash in on well-heeled borrowers
JPMorgan, Bank of America and Wells Fargo see few signs of trouble among their consumer clients.
Wealthier consumers are pulling the economy forward right now. And it is the big banks who are giving them the fuel to keep doing so.
Across this week’s third-quarter reports from Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, virtually every measure of consumer lending and health was pointing in the right direction. But that might say more about who these banks lend to than it does about the broader economy.
A key indicator of future trouble is when more payments are late. But each of those banks’ share of credit-card balances more than 30 days past due declined from a year earlier. JPMorgan lowered its expected losses on card loans for the year from 3.6% to 3.3%.
With some crucial government economic data on hold, investors might be looking at the biggest banks in the hopes of finding alternative indicators.
But while their vast branch networks might hold the checking accounts of a wide cross-section of Americans, the story told through their lending might be a narrower one—about relatively more affluent consumers.
Recent aggregated customer card data analyzed by the Bank of America Institute has shown what the researchers termed a “wide divergence" in spending trends. Lower-income households’ spending grew 0.6% year over year in September, while higher-income households’ growth was 2.6%. The figures are seasonally adjusted three-month rolling averages.
Likewise, recent headlines have highlighted trouble for some less creditworthy “subprime" borrowers on their car loans.
But at JPMorgan and Wells Fargo, which disclose these figures for auto lending, their customers’ rate of 30-days-plus past-due payments on auto loans declined year over year in the third quarter. JPMorgan’s auto-loan and lease originations volume grew 20% year over year, to $12 billion. Wells Fargo said its new auto loans more than doubled over that period, to $8.8 billion.
Wells has said in past quarters that it had tightened credit underwriting in auto lending and that its loan book has become more concentrated with higher-credit-score borrowers.
This week, the bank told analysts that its auto-origination growth in part reflected the benefits of a recent relationship as the preferred purchase-financing partner for Volkswagen’s U.S. captive finance arm for Volkswagen and Audi brand vehicles. That will extend to Ducati starting next year.
Across the banking landscape, many lenders have reined in offers to less creditworthy borrowers—in part to make up for what has broadly been viewed as an overextension of credit during the pandemic, when many more-marginal customers were flush with cash.
In December 2021, the percentage of subprime consumers with at least one credit-card account opened in the past month hit 6%, according to VantageScore’s CreditGauge tracker. That figure was 4% in December last year.
But at the other end of the spectrum, among superprime borrowers, the new-account share was steady at 2.7% in December 2021 and 2.6% in December 2024.
Having available credit is a key way to keep spending, especially if wages, or the values of consumers’ assets such as stocks or homes, slow or stagnate.
For consumers who have them, there is also an incentive to spend via banks’ rewards cards. JPMorgan Chase recently raised the annual fee on its Sapphire Reserve credit card to $795, and added new benefits. Despite the higher fee, JPMorgan Chief Financial Officer Jeremy Barnum told analysts this week that “this has already been the best year ever for new account acquisitions for our Sapphire portfolio."
Wells Fargo has been rapidly growing in cards, with new card accounts up 9% through the first three quarters of the year from last year. The bank told analysts this week that it has been focused on tapping existing clients to expand its card relationships, including in wealth management.
“We are not fully meeting the lending, deposit and payment needs of our existing wealth clients," Wells Fargo Chief Executive Charlie Scharf told analysts. Wells has a program called Premier, which integrates products across banking, lending and investing, and is aimed at clients with $250,000 or more in certain balances. Net investment inflows into Premier were up 47% in the first nine months of this year, the bank said.
If the economy was heading for a slowdown, big banks might not be able to avoid it. But they also won’t necessarily be the first indicator of trouble.
Write to Telis Demos at Telis.Demos@wsj.com
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