U.S. to hit debt limit Thursday, Yellen warns Congress

Treasury Secretary Janet Yellen on Friday notified Congress that the U.S. will reach its statutory debt limit next Thursday.

After that, the Treasury Department this month will begin “taking certain extraordinary measures to prevent the United States from defaulting on its obligations,” Yellen wrote in a letter to new House Speaker Kevin McCarthy, R-Calif.

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The Treasury “is not currently able” to estimate how long those emergency actions will allow the U.S. to pay for government obligations, she wrote.

But, “It is unlikely that cash and extraordinary measures will be exhausted before early June,” Yellen added.

She warned McCarthy that it is “critical that Congress act in a timely manner to increase or suspend the debt limit.”

“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.

“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.”

A spokeswoman for McCarthy had no immediate comment on Yellen’s letter.

White House Press Secretary Karine Jean-Pierre told reporters later Friday, “Congress is going to need to raise the debt limit without condition”

“It is one of the basic items that Congress has to deal with and that should be done without conditions. So there is going to be no negotiation over it,” Jean-Pierre said. “This is something that must get done.”

Yellen’s letter effectively starts a clock counting down how long the federal government can continue to make interest payments on its debt.

Congress in December 2021 increased the federal debt limit to about $31.4 trillion.

The limit is the total amount of money the U.S. government is allowed legally to borrow to pay for its existing obligations. Those obligations include “Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments,” Yellen noted

The so-call called extraordinary measures available to the Treasury secretary free up the government’s borrowing capacity.

This can extend the clock for weeks or months while Congress hashes out a bill to raise the borrowing limit.

Senate Majority Leader Chuck Schumer, D-N.Y., and House Democratic leader Rep. Hakeem Jeffries of New York, in a joint statement, said, “Congress must act on legislation to prevent a disastrous default, meet our obligations and protect the full faith and credit of the United States.”

“A default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even higher costs for America’s working families on everything from mortgages and car loans to credit card interest rates,” the leaders said in their statement.

Yellen wrote that the two extraordinary measures that Treasury expects to implement are redeeming existing and suspending new investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund; and suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan. 

She noted Congress previously authorized the Treasury to use such measures, which the department has employed in the past.

“After the debt limit impasse has ended,” those funds “will be made whole,” Yellen wrote.

A senior White House official told CNBC the Biden administration plans to pursue negotiations in earnest with Congress after the mid-April tax deadline.

At that point, the official said, the federal government will have a better idea of how much revenue is coming in, how far it will go in paying the country’s bills and how urgently it needs to reach a deal.  

The trajectory of the American economy between now and then will also determine how brazen Republicans become in their demands to cut spending in response.

Sen. Mitch McConnell of Kentucky, the top Senate Republican, has a long record of rejecting an increase to the debt ceiling unless fiscally conservative policies are included.

It remains unclear whether the new GOP majority in the House under McCarthy will unite over its own set of demands. 

McCarthy has made little secret of the fact that Republicans intend to demand massive spending cuts to the federal budget in exchange for approving an increase in the debt ceiling.

But he told reporters on Thursday that GOP lawmakers “don’t want to put any fiscal problems through our economy, and we won’t.”

The new House majority leader, Rep. Steve Scalise, R-La., earlier this week compared the U.S. borrowing limit to a household credit card, saying the nation needed to curb its spending the same way a person with maxed out credit cards would.

“At the same time you’re dealing with the debt limit, you’re also putting mechanisms in place so that you don’t keep maxing it out,” Scalise said to reporters on Capitol Hill, “because if the limit gets raised, you don’t go to the store the next day and just max it out again.”

“You start figuring out how to control the spending problem. And this has been going on for way too long. And we’re going to confront this,” he said.

What Republicans have failed to say, however, is that, unlike a household that defaults on its debt, a U.S. government default would have massive repercussions around the world.

A default on Treasury bonds could throw the U.S. economy into a tailspin as bad as the Great Recession, the research firm Moody’s Analytics warned in a September 2021 report.

At the time, Moody’s also projected a 4% decline in gross domestic product and the loss of nearly 6 million jobs if the U.S. defaulted.

In her letter to McCarthy on Friday, Yellen wrote, “Indeed, in the past, even threats that the U.S. government might fail to meet its obligations have caused real harms, including the only credit rating downgrade in the history of our nation in 2011.”

Yellen added: “Increasing or suspending the debt limit does not authorize new spending commitments or cost taxpayers money. It simply allows the government to finance existing legal obligations that Congresses and Presidents of both parties have made in the past.”

CNBC’s Emma Kinery contributed to this article.

Correction: An earlier version of this article incorrectly stated the month in which Congress increased the statutory debt limit.

House Republicans move to regulate crypto with new subcommittee

Representative French Hill, a Republican from Arkansas, left, speaks during a news conference on Capitol Hill in Washington, D.C., July 24, 2018.

Zach Gibson | Bloomberg | Getty Images

Republican lawmakers announced late Thursday the launch of a new subcommittee that will oversee the crypto and fintech industries, the first of its kind in the U.S., after a tumultuous period for digital currencies.

French Hill of Arkansas will chair the Subcommittee on Digital Assets, Financial Technology, and Inclusion, which will be part of the House Financial Services Committee.

Hill, who was also appointed vice chair of the broader committee, said in a statement that a bipartisan effort is needed for “FinTech innovation to flourish safely and effectively in the United States.”

The unregulated nature of the crypto industry emerged as a pressing concern late last year after the collapse in November of crypto exchange FTX. Sam Bankman-Fried, FTX’s founder, was arrested last month on fraud charges and was released on a $250 million bond while he awaits trial.

Hill has been an enthusiastic supporter of the crypto industry. In 2021, he co-sponsored the Central Bank Digital Currency (CBDC) Study Act and said at the time that it’s “important for the Federal Reserve to not delay its important work” on a potential CBDC.

In 2019, well before FTX became a household name, Hill signed a letter, urging the IRS to refine its tax guidance for cryptocurrency users.

“Ambiguity impedes appropriate tax compliance,” the letter read.

Other Republican crypto advocates in Congress have included Rep. Tom Emmer of Minnesota and Sen. Cynthia Lummis of Wyoming.

Though Bankman-Fried was operating out of the Bahamas, he was a skilled Washington operative, forging relationships with heavyweights like Rep. Maxine Waters, (D-Calif.) and Rostin Benham, chairman of the Commodity Futures Trading Commission. In the 2022 midterm races, Bankman-Fried gave almost $40 million in publicly disclosed contributions, mostly to Democrats. He and his associates donated to politicians on both sides of the aisle.

Federal regulators have alleged that Bankman-Fried committed criminal campaign finance violations while perpetrating an $8 billion fraud.

FTX’s collapse and Bankman-Fried’s subsequent indictment have provided Republicans like Emmer ample fodder to criticize the work of regulators. Emmer described actions taken by Securities and Exchange Commission Chair Gary Gensler as “haphazard and unfocused.”

Senate Democrats, meanwhile, have already begun to prepare their own efforts to oversee the crypto industry and dictate enforcement actions.

The SEC has stepped up its level of activity since FTX spiraled into bankruptcy. The commission charged crypto lender Genesis and crypto exchange Gemini with the unregistered sale and offering of securities on Thursday, the same day that Hill announced the subcommittee.

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Why inflation hit these 10 items hardest in 2022

David Paul Morris/Bloomberg via Getty Images

Inflation popped in 2022 to a level unseen in four decades.

But prices ballooned more rapidly for certain items than others, largely concentrated among food, fuel and airfare.

Some of those swings were due to outlying factors that extended beyond broad inflationary pressures such as snarled supply chains, labor shortages, burgeoning consumer demand and Russia’s invasion of Ukraine.

Here’s a look at the 10 items with the largest price gains, as measured by the annual inflation rate in December. Percentages are from the latest consumer price index data, issued Thursday.

Food at school: 305.2%

The price of a meal at elementary and secondary schools spiked the most in 2022, by a whopping 305%.

In the early days of the pandemic, the federal government enacted a program offering free meals to all public-school students, regardless of family income. That program — which expanded an existing one for lower-income families — ended Sept. 30.

Overall food prices have been pressured on many fronts, too, funneling into school meals.

For example, respective annual inflation rates for groceries and meals away from home hit 13.5% and 8% in August — their highest since 1971 and 1981, respectively.

Russia’s invasion of Ukraine created an energy supply shock, contributing to higher transport costs to deliver food from farm to table. That combined with other factors such as higher labor costs to underpin fast-rising prices throughout the food complex.

“Food inflation has been nuts,” said Tim Mahedy, senior economist at KPMG. “We hadn’t seen [these levels] consistently really in decades.”

Eggs: 59.9%

Robert Kneschke / Eyeem | Eyeem | Getty Images

Margarine: 43.8%

For example, Ukraine is the No. 1 global producer and exporter of sunflower oil. The war there squeezed supplies.

Further, Indonesia accounts for over half the world’s palm oil; the country imposed a temporary ban on exports last year and other restrictions, such as an export levy. Severe drought in Canada — the world’s largest canola-oil exporter — throttled supply. And soybean yields in Brazil fell due to weather conditions.

Fuel oil (41.5%) and motor fuels (32.3%)

Oil prices retreated in the second half of the year, though, as fears mounted of a possible recession and an accompanying weakness in oil demand.

Gasoline prices fell, too, ending the year down 1.5%. But prices for other oil products haven’t declined as steeply. Fuel oil and other motor fuels such as diesel ended the year up 41.5% and 32.3%, respectively.

Butter (31.4%) and other dairy (21.4%)

Stephen Gibson / Eyeem | Eyeem | Getty Images

Output was stable in the U.S., which raised exports to plug the gap. U.S. dairy export volumes were up 5% in 2022 through October, relative to the same period in 2021, according to USDA data. Butter exports grew by 43% over that time — leading to a lower butter supply at home, economists said,

Further, Russia and Ukraine are major suppliers of wheat. The war impacted grain supplies, raising the price of animal feed and costs for farmers, economists said.

Butter prices ended 2022 up 31.4%. Other dairy products (excluding milk, cheese and ice cream) were up 21.4%.

Airline fares: 28.5%

“People have shifted their spending away from goods to travel, restaurants and ball games,” Zandi said. “Airplanes have been packed.”

However, average fares began retreating in October, November and December.

Lettuce: 24.9%

Experts react to December's inflation report

Russia is also the world’s top fertilizer exporter. Prices for fertilizer — among farmers’ biggest costs — hit all-time highs in spring 2022 after Russia invaded Ukraine, according to the Federal Reserve Bank of St. Louis.

The price of vegetables and fruits were “significantly affected” by that run-up in prices, Zandi said.

Flour: 23.4%

4 troubling global trade trends flashing consumer weakness, recession

WarehouseQuote's Jordan Brunk on recent warehouse data and 2023 supply chain expectations

Wall Street’s biggest bank CEOs, from Jamie Dimon at JPMorgan to Brian Moynihan at Bank of America, were talking a recession as the “central case” as part of earnings reports on Friday morning.

It might be a “mild” one, as Moynihan predicts, but from the world of global trade, there are several indicators backing up the bank chiefs’ view of the macroeconomic landscape, flashing warning signals of continued consumer weakness for the first quarter.

The flow of trade is a real-time and forward-looking indicator of consumer spending and the economy because it shows supply, demand, and consumption. Here are four indicators to watch and what they are currently showing.

Indicator No. 1: Warehouse inventory and rates

Warehouse inventory is a good indicator of the health of the consumer because it gauges how much product is sitting in storage. The more product sitting in storage, the more it takes up valuable space and increases the price of storage. According to WarehouseQuote’s Warehouse Pricing Index report for Q1 2023, warehouse rates remain at high levels as a result of warehouse inventories not coming down significantly in November and December.

This is significant because holiday items were brought in early in 2022 to avoid any delays as shippers saw in 2021. Holiday products were shipped from China to the U.S. between March and May of 2022, leading to increased storage in a warehouse, and that resulted in some massive inventory pileups during the summer from the biggest retailers including Walmart and Target. During the holiday season, it took hefty markdowns from retailers to move products. Where products were being moved more successfully was through internet-based sales.

“Based on the inventory, we see more consumers purchased online rather than in-store,” said Jordan Brunk, chief marketing officer of WarehouseQuote. “Across the industry as a whole, this means there is more e-commerce inventory from warehouses than inventory heading to the brick-and-mortar stores.”

Overall, it expects the lack of warehouse capacity, combined with the lack of new square footage coming online due to the rising cost of capital and slower economy, to keep prices elevated even in a weaker consumer environment.

In Maersk‘s TransPacific Report at the end of December, it said weak demand was “expected to continue into 2023 due to a combination of high inventory levels and the likelihood of a global recession that could already be underway.”

Indicator No. 2: Manufacturing orders

The first indicator is manufacturing orders. Orders continue to be down, based on CNBC reporting, with the high inventories and a lack of consumer demand.

“We are still seeing a 40% drop in current manufacturing orders,” said Alan Baer, CEO of OL USA. “The first quarter is going to be challenging.”

The decrease in orders is based on what the factories normally receive from companies.

Indicator No. 3: Ocean freight bookings

As a result of the decrease in factory orders, there is less demand to book freight on a vessel. The SONAR Freightwaves chart below shows the steady decrease in global ocean orders.

The health of the U.S. consumer and the state of inventories for U.S. companies can be tracked by the amount of global product being brought in by ocean carriers. Ninety percent of all U.S. trade is moved on the ocean. The following chart from SONAR FreightWaves shows the diminished volumes on a global basis.

Indicator No. 4: Blank (cancelled) sailings

Blank sailings are a tool used by ocean carriers as a way to artificially constrict available vessel capacity which influences ocean freight rates. As a result of the drop in manufacturing orders and ocean orders, there are too many ships. Because of the lack of demand for the movement of ocean freight, due to the reduced manufacturing orders, ocean rates have precipitously dropped in all trade routes.

According to Xeneta and Sea-Intelligence, ocean carriers canceled more than six times the number of sailings on Asia to the U.S. West Coast trade route ahead of the Chinese New Year than they did during the same time frame in 2019.

“In a normal year, we tend to see very few blanked sailings in the run-up to this major Chinese holiday as shippers stock up on their inventories,” said Peter Sand, chief analyst at Xeneta. “So, this is a worrying development for carriers and, no doubt, a bad omen of what’s to come for the year ahead.”

Canceled sailings on the other leading trade routes also are elevated. The Far East to the U.S. East Coast skyrocketed by 340% over the same time period. Asia to North Europe has had a 715% increase in blanked sailings.

“This really demonstrates the low level of demand gripping the industry,” Sand said.


Nelson Peltz, Trian won’t pursue Wendy’s takeover

David Paul Morris | Bloomberg | Getty Images

Nelson Peltz isn’t interested in acquiring Wendy’s, according to a regulatory filing made on Friday.

Peltz serves as non-executive chair on the burger chain’s board and as chief executive of activist firm Trian Fund Management, which is its largest shareholder. In May, Trian said it was exploring a potential deal with the company to “enhance shareholder value” that could include an acquisition or merger.

“Trian believes that the Company is well-positioned to deliver significant long-term value for shareholders and looks forward to continuing to work with the Board and leadership team to do so,” Peltz said in a statement Friday.

Shares of Wendy’s rose 5.9% Friday.

Trian, which was founded by Peltz, first invested in Wendy’s in 2005, when the fund was initially created. The firm holds three board seats at the fast-food company, including the one held by Peltz.

This outcome was “widely anticipated” by Wall Street, according to a research note from Kalinowski Equity Research. The lack of a deal frees up time for Peltz, who went public this week with his desire to win a seat on Disney‘s board through a proxy fight.

Also on Friday, Wendy’s announced a reorganization for its corporate structure and the departures of U.S. Chief Financial Officer Leigh Burnside and Chief Commercial Officer and U.S. President Kurt Kane. Burnside is leaving to join another unnamed restaurant company, while Kane’s position was eliminated.

Wendy’s said the aim of the corporate redesign is to maximize efficiency and streamline decision making. Rival McDonald’s announced a week ago that it is also revamping its corporate structure for similar reasons.

In a preannouncement of its fourth quarter results, Wendy’s said its same-store sales increased 6.4% in the three months ended Jan. 1. Its net sales climbed 13.4% to $536.5 million.

The company’s board approved doubling its dividend to 25 cents and spending $500 million on share buybacks.

Jim Cramer’s Investing Club meeting Friday: Overbought, Wells Fargo

Key Senate Democrats push Southwest CEO for answers on holiday meltdown

Southwest Airlines Executive Vice President Bob Jordan speaks as he is interviewed by CNBC outside the New York Stock Exchange (NYSE) in New York City, U.S., December 9, 2021.

Brendan McDermid | Reuters

Fifteen senators, including Bernie Sanders, Elizabeth Warren and Cory Booker, sent a letter to Southwest Airlines CEO Bob Jordan on Friday demanding answers about the airline’s management of 2022 holiday travel disruptions, which left thousands of passengers stranded in airports.

The questions push for details about the causes of the meltdown, including Southwest’s overloaded crew scheduling software that buckled from all the flight changes. The mass cancellations came alongside severe winter weather across the U.S. and elevated holiday travel demand, which forced U.S. airlines to cancel thousands of flights.

When other airlines recovered from the storm, Southwest’s problems got worse. It canceled much of its schedule to try to reset its operation, spoiling the travel plans of hundreds of thousands of customers.

“Although winter storm Elliott disrupted flights across the country, every other airline operating in the United States managed to return to a regular flight schedule shortly thereafter — except Southwest,” the letter reads.

The airline canceled nearly 17,000 flights between Christmas Eve and New Year’s Eve. The company projected that the meltdown would cost it between $725 million and $825 million in the fourth quarter.

The senators also asked the airline for details on compensating affected passengers via ticket refunds, returning lost baggage and reimbursements for alternate travel arrangements made in the wake of Southwest cancellations.

Southwest is still in the process of reviewing requests for reimbursement and refunds from impacted customers.

The senators’ letter also highlights Southwest’s use of funds, claiming it neglected to update company-wide systems that have long been out of date.

“Southwest has long known that its software was outdated, and the Southwest Airlines Pilots Association had warned that such a debacle was inevitable unless Southwest invested in new scheduling systems,” the letter says. “Instead of making those investments, Southwest distributed over $1.8 billion in dividends to its shareholders and bought back over $11 billion in its shares between 2011 and 2020.”

Sen. Sanders previously bashed Southwest on Twitter for its “corporate greed,” noting that the airline used $5.6 billion of its $7 billion in Covid relief on stock buybacks for shareholders rather than invest in its internal infrastructure.

The senators are giving Jordan until Feb. 2 to respond to their questions.

Sen. Maria Cantwell, D-Wash., chair of the Senate Commerce Committee has already said she plans to hold a hearing about Southwest’s meltdown.

—CNBC’s Leslie Josephs contributed to this report.

Trump Organization hit with $1.6 million fine for criminal tax fraud scheme

The entrance to Trump Tower on 5th Avenue is pictured in the Manhattan borough of New York City, May 19, 2021.

Shannon Stapleton | Reuters

The Trump Organization, former President Donald Trump’s business empire, was hit with a $1.6 million fine Friday for tax fraud and other crimes committed as part of a yearslong scheme to help some of its top executives avoid paying taxes on compensation.

The Trump Corp. and The Trump Payroll Corp., two subsidiaries of the Trump Organization, were both sentenced to the maximum-possible fines under New York laws.

They were found guilty last month on 17 counts, including tax fraud, falsifying business records and conspiracy as part of what prosecutors had called a “sweeping and audacious” scheme to compensate company executives “off the books.” The verdict by a New York City jury marked the first-ever criminal convictions of Trump’s companies.

One of those executives was former Trump Organization Chief Financial Officer Allen Weisselberg, who pleaded guilty to tax fraud charges last summer and agreed to cooperate with prosecutors against his longtime employer.

The Manhattan District Attorney’s office accused Weisselberg of receiving more than $1.7 million in unreported compensation over more than a decade. That compensation came in the form of rent payments on luxury apartments, home furnishings, Mercedes Benz cars for him and his wife, parking garage expenses and private-school tuition payments for his grandchildren, prosecutors alleged.

Weisselberg and Trump’s companies “conducted and benefitted from sweeping fraud for well over a decade,” Manhattan DA Alvin Bragg said in a statement after the sentence came down Friday morning.

“While corporations can’t serve jail time, this consequential conviction and sentencing serves as a reminder to corporations and executives that you cannot defraud tax authorities and get away with it. It is also an important reminder that our state law must change so that we can impose more significant penalties and sanctions on corporations that commit crimes in New York,” Bragg said.

The DA added that his office’s investigation of Trump and his businesses remains ongoing.

Weisselberg, the 75-year-old former executive who has worked for Trump’s family since 1973, was sentenced Tuesday to five months in jail. Reuters reported that the Trump Organization is still paying Weisselberg’s lawyers, as well as a prison consultant to help prepare him for jail at New York’s notorious Rikers Island facility.

Trump himself was not charged in the case. He has decried the guilty verdict against his company as “a continuation of the Greatest Political Witch Hunt in the History of our Country.” The conviction came shortly after Trump announced his 2024 presidential campaign.

Weisselberg attorney Nicholas Gravante said in a statement Tuesday that Weisselberg “regrets the harm his actions have caused to the Trump Organization and members of the Trump family.”

This is developing news. Please check back for updates.

Citigroup’s fourth-quarter profit declines by 21% as bank sets aside more money for credit losses

Citigroup said it had identified the cause of the flash crash and corrected the error “within minutes.”

Jim Dyson | Getty Images News | Getty Images

Citigroup said fourth-quarter net income decreased by more than 21% from a year ago as declines in investment banking overshadowed a benefit from higher interest rates. The bank also said it was setting aside more money for credit losses.

Shares rose in early trading following the report as revenues in the markets division increased due to a record quarter for fixed income trading.

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Here are the fourth-quarter numbers versus what Wall Street expected:

  • Net income: $2.5 billion versus $3.2 billion a year ago.
  • Earnings: $1.10 a share, excluding certain divestitures. (It was not clear if that was comparable to the $1.14 a share estimate from analysts.)
  • Revenue: $18.01 billion in revenues, above the $17.9 billion expected from analysts polled by Refinitiv.
  • Net Interest Income: $13.27 billion, above the 12.7 billion expected by analysts, according to StreetAccount
  • Trading Revenue: Fixed Income $3.16 billion, above expectations. Equities trading was $789 million, below expectations.
  • Provision for credit losses: $1.85 billion compared to $1.79 billion expected by analysts polled by StreetAccount.

Jane Fraser’s turnaround efforts at Citigroup have hit a snag amid concerns over a global economic slowdown and as central banks around the world battle inflation. Like the rest of the industry, Citigroup is also contending with a sharp decline in investment banking revenue, partly offset by an expected boost to trading results in the quarter.

Citigroup’s net income slumped 21% to $2.5 billion from $3.2 billion in the previous year, largely due to loan growth in its private bank alongside expectations for a weaker macroeconomic environment going forward. The weakness was partially offset by higher revenues and lower expenses.

The bank said it set aside more money for credit losses going forward, increasing provisions 35% from the previous quarter to $1.85 billion. This build included $640 million for unfunded commitments due to loan growth in the private bank.

Revenues in services and markets divisions increased 32% and 18% respectively, driven by growth in interest income and in fixed income markets. The fixed income markets division saw revenues jump 31% to $3.2 billion, the highest fourth-quarter results ever, due to strength in rates and currencies.

“With their revenues up 32%, Services delivered another excellent quarter, and we have gained significant share in both Treasury and Trade Solutions and Securities Services,” CEO Jane Fraser said in a press release. “Markets had the best fourth quarter in recent memory, driven by a 31% increase in Fixed Income, while Banking and Wealth Management were impacted by the same market conditions they faced throughout the year.”

There was also strength in banking, with private bank revenues gaining 5% and U.S. personal bank revenues up 10%. Retail banking revenues, however, fell 3% due to lower mortgage volumes.

JPMorgan, Bank of America and Wells Fargo also reported earnings on Friday. JPMorgan topped analyst estimates for the quarter and said that it now sees a mild recession as the base case for 2023. Bank of America also beat Wall Street’s expectations as higher interest rates offset losses in investment banking.

Wells Fargo shares fell, however, after the bank reported that profits fell in the latest quarter due to a recent settlement and the bank’s boosted reserves amid economic weakness.

This is a breaking news story. Please check back for updates.

Bank of America (BAC) Q4 earnings 2022

Brian Moynihan, CEO, Bank of America

Scott Mlyn | CNBC

Bank of America reported fourth-quarter results on Friday that showed higher interest rates helped the Wall Street giant make up for a sharp slowdown in investment banking.

Here are the key metrics compared with what Wall Street expected:

  • Earnings: 85 cents per share versus 77 cents a share, according to Refinitiv
  • Revenue: $24.66 billion versus $24.33 billion, according to Refinitiv

Shares of Bank of America fell nearly 3% in premarket trading.

Expectations were running high that Bank of America would post gains in interest income thanks to higher rates and loan growth in the fourth quarter. The bank reported $14.7 billion of net interest income, up 29% year over year but slightly below Wall Street expectations of $14.8 billion, according to StreetAccount.

That gain helped offset a decline in investment banking fees, which fell more than 50% to $1.1 billion. That result was largely in line with expectations, according to StreetAccount.

Bank of America, led by CEO Brian Moynihan, was supposed to be one of the main beneficiaries of the Federal Reserve’s rate-boosting campaign. But bank stocks got hammered last year amid concerns a recession was on the way.

“The themes in the quarter have been consistent all year as organic growth and rates helped deliver the value of our deposit franchise. That coupled with expense management helped drive operating leverage for the sixth consecutive quarter,” Moynihan said in a statement.

Investors will be eager to see how Moynihan describes the state of the bank’s retail and business customers. The bank implemented a $1.1 billion provision for credit losses, up $1.6 billion compared with the same quarter in 2021, but said net charge-offs remain below pre-pandemic levels.

Notably, that was below the $2.3 billion provision for credit losses from rival JPMorgan Chase, which warned that a “mild recession” is now its central case for the U.S. economic outlook. In the earnings release, Moynihan described the economic environment as “increasingly slowing.”

On the consumer banking front, Bank of America reported that balances were roughly flat, while credit card and debit spending rose 5% year over year. Average outstanding balance on credit cards climbed by 14%.

Average loans and leases for the whole bank rose 10% year over year, while the same metric for consumer banking rose 6%.

The global wealth and investment management business saw total revenue increase marginally even as average deposits declined. Net income for the segment was down 2% year over year.

Prior to the report, Bank of America’s stock was up 4% in the first few days of 2023.

This is a breaking news story. Please check back for updates.