CE 100 gains 1.3% as major banks report results

Earnings season is in full swing, and big banks – especially JPMorgan and Citigroup – have helped shape the fortunes of the CE 100.

The index rose 1.3% for the week as bank earnings revealed relative strength in consumer spending, although Citi and JPMorgan executives noted pressures faced by consumers with lower incomes and lower credit scores.

The banking segment gained 3.9%, which contributed to the increase in the connected economy index results.

JPMorgan shares rose 4.3%. Data included in the company’s earnings report released Friday showed that consumers are still keen to use their cards for both debit and credit payments.

And while there are pockets of weakness in spending among lower-income groups, management believes spending trends remain strong — and there is still opportunity to grow its presence in the card market.

The company’s second-quarter results and additional data show that credit card borrowing rose 13% year over year to $216 billion, up 5% from the first quarter.

Debit and credit card sales rose 7% in the recent period to $453 billion.

Credit normalization

The net charge-off rate for card loans was 3.5% in the second quarter, down from 3.3% in the first quarter and 2.4% from a year earlier, according to the company. Average deposits fell 1% quarter over quarter and 7% year over year to just over $1 trillion as holders, Barnum said, moved to higher-yielding accounts.

Asked about credit scores during the call, Barnum said that “in terms of card charges and delinquencies, there’s not much to see there — it’s normalization, not deterioration. It’s in line with expectations.”

Consistent with commentary on bank earnings earlier this year — which pointed to pressure on specific customer groups — Barnum said there was “behavior consistent with some weakness in the lower-income customer group.”

Citi’s View on Consumer Spending

Citigroup shares rose 3.3% on the company’s earnings report, and similar sentiment was evident on the company’s earnings call with analysts, particularly regarding consumer spending among lower-income groups.

The company’s financial results show some divergence in consumer spending, as those with higher credit scores continue to use cards while consumers with lower FICO scores are lagging behind amid signs of belt-tightening.

Citi card spending was up 3% from a year ago. Volumes were up 8% from the previous quarter to $131 billion. At the same time, average card loans were up 10% year over year to $109 billion. The 90-day delinquency rate was 1.1% in the latest quarter, up 0.28%.

On a conference call with analysts, Chief Executive Jane Fraser said Citi was seeing “differentiation in the credit segment, with lower-income customers feeling the squeeze,” and executives also mentioned tightening budgets.

CFO Mark Mason said on the call that “across our card portfolios, about 86% of our card loans are to consumers with FIFO scores of 660 or higher. And while we continue to see a resilient consumer overall… when you look at our consumer customers, only the highest quartile of income has more savings than they did at the beginning of 2019. And it’s the customers with FICO scores above 740 that are driving spending growth and keeping payment rates high.”

He further explained that “customers in the lower FICO bracket are seeing larger declines in interest rates and are borrowing more because they are more affected by high inflation and interest rates.” To that end, Mason said, “some customer groups are still feeling the effects of persistent inflation and higher interest rates, resulting in larger losses… (but) we are seeing signs of stabilization and results in late payments.”

Amazon shares fell 2.8%. This week, news broke that Rufus, the e-commerce giant’s AI-powered shopping assistant with generative features, is now available to all U.S. customers on the Amazon Shopping app.

The Rufus app, introduced in February, answers questions about various shopping needs and products, the company said Friday.

The beta version of the shopping assistant was launched by Amazon in February. The company said Rufus will initially be available to a small group of customers using the company’s mobile app, and will be rolled out to more customers in the US in the coming weeks.

Ocado shares are up 17.3%. In an announcement earlier this week, Ocado said it was expanding its partnership with AEON, which originally began in 2019 to develop its online grocery business AEON NEXT through the Ocado Smart Platform (OSP), with additional facilities set to launch in Japan in 2027.

Meta shares fell 7.7%, while the Enablers segment lost 0.6%.

As detailed here , Meta, still navigating the turbulent waters of its billion-dollar metaverse, is now turning to AI as a potential lifeline, as evidenced by job postings in media outlets including TechCrunch.

“We want to create experiences that change every time you play them,” the job ad reads, painting a picture of virtual worlds as dynamic as digital ones. A far cry from the static, often lonely spaces that populate Meta’s Horizon platform.

The pivot comes at a pivotal time for the company: Despite selling millions of Quest headsets, its Meta Reality Labs unit is struggling to find its footing, racking up losses of around $50 billion.