With the recovery of the United States economy and buoyancy in the financial markets, 2021 is likely to be a year of “record level” of earnings for US banks, said the Institute of International Finance, an industry association.
Bank lending would be driven by the improving economy with fee income likely to also pick up while trading revenue will also likely see an uptick because of more investing activity, said Tim Adams, chief executive of the IIF.
“I think we’re going to see record-level earnings this year so it’s a good year for banks. We see it in the bank stocks, and I think it’ll continue to reflect those underlying, really strong fundamentals for at least the rest of this year,” Adams said in a television interview.
Bank stocks have surged in the current year in the US. There was a 40.8 per cent rise in the stock price of Goldman Sachs so far this year as on close on Thursday. On the other hand the other two large banks of the US – Bank of America and JPMorgan, have seen their share prices gain about 40.4 per cent and 29.3 per cent respectively so far this year.
First quarter earnings reports that exceeded analysts’ expectations on several financial metrics were reported by many of the big US banks last month.
This better than expected performance of large American banks come in the backdrop of a recovery of the US economy from the Covid-19 pandemic slump. There were worries among investors that with the fast recovery of the American economy there can be a quicker rise in inflation which could prompt tighter monetary policy sooner than expected from the Federal Reserve.
In April, there was a 4.2 per cent rise in the US consumer price index compared to the same month a year ago which was the sharpest increase since 2008.
The possibility of tapering monetary policy should now be discussed by the Federal Reserve, Adams said. But he also said that would be done by the Fed Chair Jerome Powell is not likely based on the currently available signals.
“I think they’re going to run this economy hot. I think they’re going to run it hot for a very long time and they’re going to wait and see inflation and how sustained inflationary pressures are rather than just transitory, which is what we’re seeing now,” said Adams.
On previous occasions, the Fed had said that any rise in inflation would be temporary since it is compared to the inflation in the same period of the previous year when the pandemic had severely hit the country’s economy. The central bank also indicated that it would keep monetary policy loose.
(Adapted from CNBC.com)