Economic Rebound And Deals Help Estimating Beating Profits By US Banks

Another strong quarter of earnings were reported throughout the week by the four largest consumer banks in the United States, buoyed by the improving situation in the economy which gave them the opportunity to release more cash which they had kept aside to account for anticipated losses by the Covid-19 pandemic, as well as because of stellar deal making, equity financing and trading which improved the bottom line of the banks.   

Analysts and economists consider JPMorgan Chase & Co, Citigroup, Well Fargo & Co, and Bank of America Corp to be bellwethers of the broader American and global economy, and all the banks reported a combined profit of $28.7 billion for the third quarter, which comfortably beat expectations of analyst.

The banks said that the releasing of combined funds worth $6 billion that the banks had set aside for pandemic loan losses accounted for much of the increase in profits as the funds were left unused as pandemic loan losses did not materialise primarily because of extraordinary government financial stimulus during the pandemic as well as governmental aid programs and loan repayment holidays.

However, there was mixed growth in the loan growth, which is a key metric that is closely monitored by analysts at the Wall Street. Consumers and businesses, that still have cash at hand gained from government aid programmes, are continuing to pay down their loans, making it difficult for some of the lenders to expand their loan books.

Despite some risks on the horizon, such as the latest wave of Covid-19 infections and inflation concerns, executives were cautiously optimistic about the recovery of the economy being on a healthy path on the overall.

“The outlook for the economy is promising,” Wells Fargo Chief Executive Charles Scharf told analysts said.

“Consumers’ financial condition remains strong with leverage at its lowest level in 45 years and the debt burden below its long-term average. Companies are also strong as well.”

He added that the customers of the banks are looking to spend the cash that they have at hand and noted that the consumer deposit balances at the banks have remained above the pre-pandemic levels.

According to JPMorgan, there was a 26 per cent year over year growth in total debit and credit card spending, while there was stabilization in card payment rates which has resulted in the modest card loan growth. There was a 21 per cent growth in spending on credit and debit cards at Bank of America.

There was a 24 per cent year on year growth in spending on Citi-branded credit cards in the United States, but there was a 3 per cent fall in net interest revenue from credit card accounts because so many customers are paying off their balances. There was a 5 per cent quarter n quarter4 growth in net interest revenue on the cards, indicating that the trend may be changing.

“On balance, the earnings across the board are really solid,” said Patrick Kaser, portfolio manager at Brandywine Global Investment Management.

“We’re seeing signs of inflection in loan growth [and] optimism about continued economic strength, re-affirmation of the strength of the consumer.”

(Adapted from ChannelNewsAsia.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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