Big Banks Kick Off Q4 Earnings Season: Why JPMorgan's Results Suggest Mild 2023 Recession Is The Base Case

Rising interest rates, weak consumer spending, and inflation reaching a four-decade high have all contributed to a tough outlook for the American economy in recent months.

While most economists predict a recession in 2023, investors found signals in one of the earnings reports issued by the nation's largest banks Friday.

What Happened: JPMorgan Chase & Co JPM said it is gearing up for a mild recession, warning on Friday's earnings call that it is putting additional resources aside to offset credit losses as a mild economic downturn is its "central case."

The bank reported a 6% year-over-year increase in profit to $11.01 billion, or $3.57 per share. Revenue increased 17% to $35.57 billion, owing to an increase in net interest earnings to $20.3 billion.

A key aspect of the New York bank’s earnings repot: it posted a $2.3-billion provision for bad loans in the quarter, a 49% increase from the third quarter and exceeding the $1.96-billion Street estimate, as it sets aside money for anticipated delinquencies as its clients accumulate bad debt.

According to the bank, the move was motivated by a moderate degradation of its macroeconomic outlook, now reflecting a base case of a mild recession, as well as loan growth from Chase credit card customers.

Shares of JP Morgan Chase are trading 1.24% higher to $141.26 Friday.

Read also: Big Bank Earnings Supported by Strong Net Interest Income, But Questions Arise on How Long it Can Last

Why It Matters: Chase isn’t the only bank alluding to a recession.

Bank of America Corp BAC also made a move on its reserves for soured loans, adding $403 million, reversing from the release of $851 million in reserves one year ago.

The North Carolina-based bank reported revenue of $24.5 billion in the third quarter, beating estimates of $24.2 billion and increasing 11% year-over-year.

Earnings remained stable at $7.1 billion, or 85 cents per share. This was slightly higher than $7 billion on a year-over-year basis. 

Shares of Bank of America are trading 0.7% higher to $34.71.

Citigroup Inc C posted net income of $2.5 billion, or $1.16 per diluted share, exceeding expectations of $2.3 billion, or $1.14 per share.

Citigroup also added to its reserves, to the tune of $640 million for bad consumer credit loans.

Shares of Citigroup are trading 0.86% higher to $49.52.

Wells Fargo & Co WFC reported earnings of 67 cents per share on $19.7 billion in revenue, beating analyst estimates on earnings per share but falling short on total bookings.

Shares of Wells Fargo are trading 1.12% lower to $42.35.

Read next: Why This Bank Analyst Is No Longer Bullish On Ally, Capital One

Benzinga file photo of Jamie Dimon by Dustin Blitchok.