What Bank Earnings Tell Us About the Economy

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On Wall Street, M&A is on fire, but on Main Street, credit growth is muted

Expenditure
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Bank executives said customer spending has assumed pre-pandemic levels, a trend they see continuing over the holidays. Spending on Citigroup credit cards jumped a record 20% from a year ago. Late fees have gone up and more people are starting to keep balances. Officials said they are back to fight for the card customers.

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“It’s a tremendous expense that’s going on,” said Brian Moynihan, chief executive officer of Bank of America, “and it’s accelerating.”

Loan

A still fragile economy and wide open credit markets have cut demand for bank credit during the pandemic. At Wells Fargo and Bank of America, total outstanding loans were lower than a year ago but up from the second quarter.

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“We all dream of fast loan growth,” Wells Fargo chief financial officer Mike Santomasimo said on a call with analysts.

One loan category, securities-based lending, is growing rapidly. Bank of America and Morgan Stanley both reported double-digit growth in loans to customers who borrowed against their stock-and-bond portfolios.

Business

Frantic markets propelled big US banks through the coronavirus pandemic. Now, equity trading is still up, but fixed-income trading is slow. Morgan Stanley and Bank of America both posted gains in overall trading revenue. JPMorgan Chase & Company, Citigroup and Wells Fargo reported lower trading revenues.

Investors are trying to find a new “normal” level of trading. The third quarter could be evidence that large US banks will have higher market revenues than ever before, as they are winning more business from international rivals, said Kush Goyal, a senior analyst at investor Neuberger Berman.

deal

The bonus of a global deal to banks’ Wall Street operations continued. JPMorgan, Morgan Stanley, Bank of America and Citigroup all reported record quarters for merger and acquisition fees. Goldman Sachs‘s

The team leading the league is due to report on Friday. Officials said the pipeline is full for potential future deals. It’s a sign that company executives are confident enough in the economy to attempt transformative deals.

write to David Benoit at [email protected], Ben Eisen at [email protected] and Orla McCaffrey at [email protected]

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