As the economy recovers, the largest U.S. bank breaks profit expectations Reuters

(This July 14 story corrected the quote in paragraph 13 to show FuGuo bank (New York Stock Exchange:) The CFO compares current consumer spending with 2019, not 2018 as previously mentioned)

Michele Price

Washington (Reuters)-After the pandemic loan losses failed to materialize and the U.S. economy began to recover, the four major US consumer banks announced their sensational second-quarter results this week.

Wells Fargo & Co, Bank of America (NYSE:), Citigroup Inc (NYSE:) and JPMorgan Chase (NYSE:) announced a total profit of 33 billion U.S. dollars, thanks to the $9 billion they reserved last year to absorb pandemic losses The release of gold.

This is beyond analyst estimates https://www.reuters.com/business/finance/us-banks-see-big-jump-2q-profits-before-results-return-normal-2021-07-08 about 240 Billion US dollars in total, compared with 6 billion US dollars in the same period last year.

Banks say consumer spending has climbed, sometimes even surpassing pre-pandemic levels, while credit quality has improved and savings and investment have increased.

Due to the government’s special stimulus and loan repayment holidays, the pandemic losses that people were worried about did not happen. The introduction of national vaccination also allows Americans to return to work and start consumption again.

The hot capital market activities have also helped the largest banks in the United States. Goldman Sachs Group Inc (NYSE:) reported a profit of $5.35 billion, more than double the adjusted profit a year ago.

Citigroup CEO Jane Fraser said: “The pace of global recovery has exceeded earlier expectations, and consumer and business confidence has risen.”

Chart: Rebound in credit card consumption: https://graphics.reuters.com/USA-ECONOMY/dgkplrowepb/chart.png

This is reflected in the rebound in consumer loans.

For example, JPMorgan Chase stated that its total debit and credit card spending increased by 22% compared to the same period in 2019, when spending patterns were more normal.

US Citi brand credit card spending increased by 40% over the same period last year, but due to the large number of customers, its credit card loans fell by 4%.

Citigroup Chief Financial Officer Mark Mason said that as the government stimulus program ends later this year, the bank expects more customers to return to the pre-pandemic revolving balance model.

Due to the increase in the number of points of sale, Wells Fargo’s credit card revenue increased by 14% compared to the second quarter of 2020. The bank said that revenue in the first quarter increased slightly.

“What we are seeing is that people are starting to consume and take more actions in a way that seems more like before the pandemic started. Of course, on the consumer side, even compared to 2019, spending has increased a lot. “Wells Fargo Bank Chief Financial Officer Mike Santo Massimo told reporters.

Although loan growth is still tepid, which is usually detrimental to bank profits, there are signs that demand is picking up.

For example, excluding loans related to the U.S. government’s pandemic assistance program, Bank of America’s loan balance increased by $5.1 billion from the first quarter.

“Deposits have grown strongly and loan levels have begun to grow,” Bank of America chief executive Brian Moynihan said in a statement.

The country’s largest bank, JP Morgan Chase, reported a profit of US$11.9 billion on Tuesday, compared with US$4.7 billion last year.

Citigroup’s second-quarter profit increased from last year’s 1.06 billion US dollars to 6.19 billion US dollars, while Bank of America’s profit jumped from 3.28 billion US dollars to 8.96 billion US dollars.

Wells Fargo reported a profit of 6 billion U.S. dollars, compared with a loss of 3.85 billion U.S. dollars last year, which is mainly related to special projects.

Analysts said that while the results are good news for consumers and businesses, low interest rates, weak loan demand and slowing transactions may put pressure on future results.

Fed Chairman Jerome Powell said in his speech to Congress on Wednesday that the Fed will stick to its inflation target of 2% and has no plans to tighten monetary policy by raising interest rates.

This shows that banks will have to deal with low interest rates for a long time.

Chart: Bank commercial loans continue to decline: https://graphics.reuters.com/USA-ECONOMY/xlbvgqagjvq/chart.png