U.S. banks beat profit estimates on economic rebound, deals bonanza

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WASHINGTON (Businesshala) – The four largest US consumer banks posted another strong quarter this week as the rebounding economy allowed them to issue more cash set aside for the damages of the pandemic, while burning deals, equity financing and trading. also boosted their bottom lines.

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JPMorgan Chase & Company, Citigroup, Well Fargo & Company and Bank of America Corp, seen by analysts and economists as bellwethers of the broader economy, reported a combined profit of $28.7 billion for the third quarter, well above analysts’ estimates. is beating.

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Much of this was driven by the release of a combined $6 billion fund that banks had set aside for the pandemic loan deficit, which has not budged thanks to extraordinary government stimulus, aid programs and loan repayment holidays.

Banks said the national vaccination roll-out has allowed Americans to go back to work and resume socializing after 19 months of pandemic-related business closures and travel restrictions, sparking a boom in consumer spending.

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Loan growth, a key metric closely watched by analysts, was mixed on Wall Street though. Some lenders are still struggling to grow their loan books as consumers and businesses, flush with cash from government aid programs, continue to pay off loans.

Overall, however, officials were cautiously optimistic that the economy is on a healthy trajectory, despite the latest wave of COVID-19 infections and some risks on the horizon, including inflation concerns.

“The outlook for the economy is promising,” Wells Fargo chief executive Charles Scharf told analysts on Thursday.

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“Consumer financials remain strong with leverage at its lowest level in 45 years and debt burdens below its long-term average. Companies are also strong.”

The bank’s customers have cash and are looking to spend, he said, adding that the average deposit balance of consumer customers has remained above pre-pandemic levels.

JPMorgan said combined debit and credit card spending grew 26% year-over-year, while card payment rates contributing to modest card loan growth remained steady. At Bank of America, combined credit and debit card spending increased 21%.

Spending on Citi-branded credit cards in the United States rose 24% from a year ago, but net interest revenue from credit card accounts with so many customers declined 3%. In a sign that the trend is changing, net interest revenue on cards was up 5% from the second quarter.

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

“We are seeing signs of change in credit growth” [and] Optimism about continued economic strength, reaffirmation of consumer strength.”

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‘On fire’

Flamboyant capital markets have enthused even the country’s biggest lenders over the past six months, easing monetary conditions have driven record-breaking volumes of both mergers and acquisitions (M&A) and initial public offerings, fueling tariffs.

This helped offset the decline in fixed income trading this year, which was turbo-charged by intense market volatility last year.

Investment banking giant Morgan Stanley Inc crushed estimates on Thursday, reporting a profit of $3.58 billion, up about 38% from the year-ago quarter. This was thanks in large part to a record $1.27 billion in revenue from advising on deals.

“The investment bank, and M&A, is under fire,” the bank’s chief executive, James Gorman, said in an interview with CNBC following the results. “We’ve got global GDP growth, huge fiscal stimulus, record low interest rates. People want to transact.”

The highlight of JPMorgan’s third quarter was also its corporate and investment bank division, where strong M&A and equity underwriting nearly tripled advisory fees. All told, that division posted a 6% increase in net revenue.

At Bank of America, revenue from its equity division increased 33% year-over-year, driven by increased customer financing activities and strong business performance, while Citigroup said revenue for its equity markets business increased 40%. % had increased.

Wall Street’s most prolific dealmaker Goldman Sachs will end the bank earnings session on Friday.

While capital markets rallied, credit growth was mixed.

JPMorgan said on Wednesday that loans across the bank were up 5% compared to last year, while Citi was roughly flat. Bank of America and Wells Fargo reported declining year-over-year loan growth.

However, lending is headed in the right direction at Bank of America, with loan balances at $21 billion as of the second quarter of this year.

“We still see people paying their bills and moving around less,” Kesar said. “So the lack of credit growth is easily understandable.”

Writing by Michelle Price; Reporting by Anirban Sen, Noor Zainab Hussain, Sohini Poddar, Manya Saini, Matt Scuffham, David Henry and Elizabeth Dilts; Editing by Nick Ziminsky

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