U.S. banks beat earnings estimates on economic rebound

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WASHINGTON: America’s four largest consumer banks posted another strong quarter this week as the rebounding economy allowed them to free up more cash than they had set aside for pandemic-related losses, while that scorching deals, equity finance and trade also increased their results.

JPMorgan Chase & Co, Citigroup, Well Fargo & Co and Bank of America Corp, considered by analysts and economists to be the barometers of the economy at large, reported a combined profit of US $ 28.7 billion for the third quarter, exceeding analysts’ estimates.

Much of this was due to the release of a combined US $ 6 billion that banks had set aside for pandemic loan losses that did not materialize thanks to extraordinary government stimulus measures, loan repayment assistance and vacation programs.

With the nationwide rollout of vaccination allowing Americans to get back to work and resume social activities after 19 months of business closures and pandemic-related travel restrictions, consumer spending has skyrocketed, banks said .

Loan growth, a key metric closely watched by analysts, however, has been mixed on Wall Street. Some lenders are still struggling to increase their loan portfolios as consumers and businesses, which have funds from government assistance programs, continue to repay their loans.

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

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

“The financial situation of consumers remains strong with debt at its lowest level in 45 years and a debt burden below its long-term average. Businesses are also strong. ”

The bank’s customers have cash and are looking to spend, he added, noting that median deposit balances for consumer customers remained above pre-pandemic levels.

JPMorgan said combined debit and credit card spending grew 26% year-on-year as card payment rates stabilized, contributing to modest growth in card loans. At Bank of America, combined credit and debit card spending rose 21%.

Spending on Citi-branded credit cards in the United States jumped 24% from the previous year, but with so many customers paying off balances, net interest income from credit card accounts jumped. fell 3%. As a sign that the trend could be reversed, net card interest income increased 5% from the second quarter.

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“Overall earnings overall are really strong,” said Patrick Kaser, portfolio manager at Brandywine Global Investment Management.

“We are seeing signs of an inflection in loan growth [and] optimism about maintaining economic strength, reaffirmation of consumer strength. “

‘ON THE FIRE’

Sizzling capital markets over the past six months have also supported the nation’s largest lenders, with easy monetary conditions driving record volumes of mergers and acquisitions (M&A) and initial public offerings fueling the charges.

This helped cushion a decline in fixed income trading this year, which was boosted last year by intense market volatility.

Investment banking giant Morgan Stanley Inc crushed estimates on Thursday, reporting profit of $ 3.58 billion, up nearly 38% from the quarter last year. Much of this is due to a record US $ 1.27 billion in revenue from transaction advice.

“Investment banking itself and mergers and acquisitions are on fire,” James Gorman, chief executive of the bank, said in an interview with UKTN after the results. “We have global GDP growth, huge fiscal stimulus, record interest rates. People want to trade.”

JPMorgan’s third quarter highlight was also its Corporate & Investment Bank division, where advisory fees nearly tripled due to strong M&A and equity underwriting. In total, this division recorded a 6% increase in net sales.

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At Bank of America, revenue from its equity division grew 33% year-over-year, driven by growth in customer financing activities and strong business performance, while Citigroup said revenue from its equity market activities jumped 40%.

Goldman Sachs, Wall Street’s most prolific dealmaker, will close the banking results season on Friday.

While capital markets have shone, loan growth has remained mixed.

JPMorgan said on Wednesday lending was up 5% across the bank from a year ago, while Citi was broadly stable. Bank of America and Wells Fargo reported lower year-over-year loan growth.

However, loans appeared to be going in the right direction at Bank of America, with loan balances up US $ 21 billion from the second quarter of this year.

“We still see people paying their bills and running less,” Kaser said. “So the lack of loan growth is easily explained. “

(Written by Michelle Price; reporting by Anirban Sen, Noor Zainab Hussain, Sohini Podder, Manya Saini, Matt Scuffham, David Henry and Elizabeth Dilts; Editing by Nick Zieminski)

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