What bank results tell us about the health of Uncle Sam

We're only a fortnight into the New Year and already some of the biggest names in American business (Other OTC: ARBU - news) have begun updating investors on their results for the final three months of last year.

Among the first out of the traps have been some of the big banks - and it is already possible to detect a trend.

The picture emerging is that some of Wall Street's biggest players did not have a good final quarter in 2018. No surprise there, you might say, when US stock markets suffered their worst December since 1931.

Citigroup (NYSE: C - news) , America's fourth-largest bank by market capitalisation, reported revenues of $17.1bn (£13.4bn) for the fourth quarter on Monday.

This was some way short of the $17.6bn (£13.8bn) that analysts had been forecasting and was due, in part, to a 21% drop in its bond, currency and commodity trading revenues on the same three months a year earlier.

The drop in trading income reflects the fact that, during the volatile trading in markets, a lot of clients sat on the sidelines rather than trade securities.

It cut staff pay by $300m (£236m) during the final three months of the year.

It was a similar story at JPMorgan Chase (Swiss: JPM-USD.SW - news) which, with a market capitalisation of $335bn (£263bn), is America's biggest bank by some distance.

It too missed analysts' targets when, on Tuesday afternoon, it reported fourth-quarter revenues of $26.8bn (£21bn). Its bond, currency and commodity trading revenue fell by 18% during the three months. Profits for the quarter also fell short of Wall Street's expectations - the first time JPMorgan (LSE: JPIU.L - news) has disappointed investors since 2014.

And Wells Fargo, America's third-largest bank by market capitalisation, also offered patchy news.

The bank, more of a 'Main Street' than a Wall Street entity, also reported revenues and profits for the fourth quarter that fell short of expectations.

This reflected a deliberate decision to issue fewer car loans, while the size of the bank's mortgage book also shrank, largely because more customers repaid their home loans than took out new ones.

It is not all bad news, however. Citi's shares - which lost more than a quarter of their value during the final three months of last year - actually rallied since the results were published after the bank said its lending revenues this year would be up on 2018.

Big banks like JPM and Citi have plenty of levers on which to pull in order to maintain profitability, such as cutting costs, something Citi in particular is achieving, in part, by continuing to offload unwanted assets still lingering on its books from the global financial crisis.

Meanwhile JPMorgan, despite falling short of expectations, still actually raised profits during the quarter as the spread between what it pays savers and charges borrowers widened due to rising interest rates.

Wells, too, reminded investors that, while its mortgage book shrank towards the end of the year - it is America's biggest mortgage provider - it raised lending to businesses.

Yet the outlook is uncertain. The US Federal Reserve is expected to plough ahead with further interest rate rises this year while the most unpredictable element, as was the case last year, remains President Trump and his seeming determination to ratchet up pressure on China with higher tariffs.

As Mike Corbat, Citi's chief executive, put it: "Right now, we see the biggest risk in the global economy as one of talking ourselves into a recession."

Those sentiments were echoed by Jamie Dimon, JPMorgan's chief executive, whose pronouncements on the US economy are followed closely by investors.

He said: "As we head into 2019, we urge our country's leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment."

The president, however, may not be listening to closely to Mr Dimon. Last September, Mr Dimon somewhat rashly told an event in New York that he could beat Mr Trump in a presidential election, pointing out that he grew up in a tougher neighbourhood than the president.

He added: "I'm as tough as he is, I'm smarter than he is. I would be fine. He could punch me all he wants, it wouldn't work with me. I'd fight right back."

Mr Trump hit back: "The problem with banker Jamie Dimon running for president is that he doesn't have the aptitude or smarts and is a poor public speaker and nervous mess."

Even (Taiwan OTC: 6436.TWO - news) taking into account the weaker trading revenues in the fourth quarter, the fact that these three banks - Bank of America (Swiss: BAC-USD.SW - news) publishes its results on Wednesday, followed by Morgan Stanley (Xetra: 885836 - news) and Goldman Sachs (NYSE: GS-PB - news) on Thursday - are reporting difficulties in major parts of their businesses does not bode well.

It is far from being a disaster: American companies are still investing and American consumers are still buying homes and cars. But banks are always a geared play on the economies in which they operate and these numbers suggest the US economy, after several years of strong growth, is starting to slow.