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Illustration: Sarah Grillo/Axios

The flush U.S. consumer is lifting profits for the big banks, busily pouring free cash into savings and checking accounts while spending on credit cards and borrowing money to buy homes.

Why it matters: The strength and optimism of the American consumer continue to underpin the record-long economic recovery — and stand as a contrast to the gloomy outlook expressed lately by business leaders. "There's solid consumer activity across the board," said Bank of America's CEO, Brian Moynihan, echoing sentiment from his competitors at JPMorgan Chase, Citigroup and others.

Driving the news: Just about all the big banks opened up their books this week, showing strong second-quarter earnings that put consumers in the starring role. The results dovetailed with high retail sales figures for June, which beat expectations and augured well for the economy.

  • JP Morgan, the largest bank in the U.S., said stellar results from its consumer banking business made up for lackluster revenue from its business of selling and trading stocks and bonds.
  • Citigroup also benefited from a surge in its consumer banking unit, where Citi-branded credit cards led the way with a 7% jump in revenue.
  • Bank of America, which reported record profits for the first half of the year, credited its strong results to strong consumer demand.
  • Goldman Sachs, which is only just starting to ramp up its Main Street banking business, was the only bank to report shrinking profits from the prior year.

What they're saying: "The market keeps doubting the sustainability of the health of the consumer — and the consumer keeps confounding the market," Kevin St. Pierre, who covers the banks at KSP research, tells Axios.

  • Jamie Dimon, CEO of JPMorgan Chase: “We continue to see positive momentum with the U.S. consumer — healthy confidence levels, solid job creation and rising wages."
  • Moynihan of Bank of America: "Our view of the economy reflects the activity by the one-in-two American households we serve, which points to a steadily growing economy."
  • The WSJ's takeaway: "U.S. consumers are taking advantage of low interest rates to borrow and spend, boosting banks that cater to Main Street and leaving behind those that don’t."

Yes, but: Fed chairman Jerome Powell has all but said the central bank will pare back interest rates later this month — and might do so again later this year. This poses a risk for banks, which make money by charging borrowers higher, longer-term interest rates while paying out low rates on deposits.

  • All of the big banks warned that rate cuts would put even more pressure on this metric, known as net interest income.
  • "The bigger banks can offset it. They have all these other businesses," Saul Martinez, an analyst at UBS, tells Axios.
  • Martinez noted that this dynamic may be a bigger issue for regional banks like PNC and US Bancorp, which both reported strong loan growth this week.

The bottom line: While corporate lending and other lines-of-business were bright spots in many of the banks' earnings, "the consumer still buoys the results from the banks with big credit card and mortgage portfolios, like Bank of America, Citi and J.P. Morgan," says St. Pierre.

  • "We continue to hear that [the economy] is “late cycle” and every day is one day closer to the next recession," he added. "This cycle may be old, but it’s old like Sting, as opposed to Keith Richards old."

Go deeper

Emergency declaration issued in 17 states and D.C. over fuel pipeline cyberattack

Photo: Luke Sharrett/Bloomberg via Getty Images

The Biden administration said it's "working with" fuel pipeline operator Colonial Pipeline to try and restart operations after a ransomware attack took it offline.

Why it matters: Friday night's cyberattack is "the most significant, successful attack on energy infrastructure" known to have occurred in the U.S., notes energy researcher Amy Myers Jaffe, per Politico. A regional emergency

14 mins ago - World

Sullivan expresses "serious concerns" to Israeli counterpart about Jerusalem violence

Israeli soldiers throw tear gas canisters at Palestinian demonstrators during a protest near the Jewish settlement of Beit El near Ramallah, in the occupied West Bank, on Sunday. Photo: Abbas Momani/AFP via Getty Images

U.S. National Security Adviser Jake Sullivan expressed "serious concerns" Sunday to his Israeli counterpart about "violent confrontations" in Jerusalem and planned evictions of Palestinian families from their homes in the city's east, per a White House statement.

Driving the news: More than 250 Palestinians and several Israeli police officers have been wounded since Friday. Israeli police have used tear gas, stun grenades, water cannons and rubber bullets on protesters, who've thrown "rocks and water bottles" at officers, per NPR. The violence continued Sunday night, AP notes.

Ina Fried, author of Login
Updated 4 hours ago - Technology

Exclusive: GLAAD finds top social media sites "categorically unsafe"

The leading social media sites — Facebook, Twitter, Instagram, TikTok and YouTube — are all "categorically unsafe" for LGBTQ people, according to a new study from GLAAD, the results of which were revealed Sunday on "Axios on HBO."

The big picture: GLAAD had planned to give each of the sites a grade as part of its inaugural social media index, but opted not to give individual grades this year after determining all the leading sites would receive a failing grade.