Big Banks See U.S. Rebound Juicing Profits After Trading Bonanza

Five U.S. banking giants just trounced analysts’ profit estimates, with JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. setting records. Their CEOs then took turns extolling the economy ahead.

After a year of pandemic lockdowns that left millions jobless and small businesses teetering, giant lenders that weathered that storm by riding Wall Street operations are predicting a pivot to the revival of U.S. consumers and commerce. Billions of dollars stockpiled for souring loans might ultimately be paid to shareholders.

“We see an accelerating recovery,” Bank of America Corp. Chief Executive Officer Brian Moynihan said Thursday.

“This is the healthiest we have seen the consumer emerge from a crisis in recent history,” added Citigroup CEO Jane Fraser.

It’s a scenario few would have predicted a year ago, when the nation’s financial capital, New York, was the epicenter of the coronavirus pandemic and much of the U.S. economy was put on hold to curb infections. Businesses were drawing down credit lines. Corporate bankruptcy lawyers were signing up clients.

But government stimulus and Federal Reserve intervention propped up the financial system and kept fueling a windfall for bank traders and dealmakers. As that seemed set to fade, retail investors and blank-check investment firms flooded in, driving up asset prices even higher and generating billions of dollars in fee income for Wall Street firms.

Shares of big banks have been on such a tear that even JPMorgan’s record profit wasn’t enough to further propel its stock, which is up about 19% this year. Wells Fargo & Co. is up 39% since the start of January and Goldman 29%. Morgan Stanley reports earnings Friday.

There are caveats: Too many people are being left behind in the recovery and need more help, Wells Fargo CEO Charlie Scharf told analysts. Unemployment, currently at 6%, may linger above 5% through 2022, Moynihan said. Meanwhile, low interest rates meant to stoke the economy are eroding banks’ income from interest. Regulatory oversight may stiffen.

And there are elements of the banks’ optimism that have yet to be borne out. Among them is the notion that weak demand for loans -- normally a bad omen -- bodes well. Bankers are citing it as evidence consumers and companies have their financial affairs in order and that the country is ready to emerge from lockdown to eat in restaurants, board planes and do business.

“This is not bad news about loan demand,” JPMorgan CEO Jamie Dimon said. “This is actually good news.”

The banks aren’t taking their predictions for new profit drivers for granted. As part of a strategy review under new CEO Fraser, Citigroup plans to exit retail banking in 13 markets across Asia and the Europe, Middle East and Africa region. Bank of America intends to let headcount fall through attrition. Wells Fargo is still plugging away on an overhaul and job cuts in the wake of scandals.

“With vaccine distribution accelerating, I’m hopeful that we will be shifting to a more normal way of life soon,” Wells Fargo’s Scharf said.

©2021 Bloomberg L.P.

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