Bank of America, JPMorgan and Citi Watch Lending Stall After U.S. Stimulus

(Bloomberg) -- For much of the pandemic, banking giants thrived as the U.S. government sent checks to consumers, helping them keep up with debts. Now, lenders are feeling the equivalent of a hangover.

One after another, giants including Bank of America Corp. and JPMorgan Chase & Co. watched their stocks drop this week as they described the impact of that stimulus on current business. After initially paying down loans, customers returned to spending -- but they still aren’t borrowing, at least for the moment.

Bank of America dropped as much as 5.2% on Wednesday after loans and leases in the consumer banking unit declined 12%, in what firm suggested could be the nadir in demand for financing. The picture was similar at Wells Fargo & Co., where the average balance of its lending book tumbled a similar amount. At JPMorgan, consumer lending was down, though total loans were flat from a year ago.

Government stimulus programs pumped trillions of dollars into the economy and households to help them weather the pandemic. For banks, that staved off losses but has since translated to weakened demand for new loans -- weighing on earnings even as other business segments thrive on volatile markets and a flurry of deal-making.

“The key issue is the revolve behavior,” JPMorgan Chief Financial Officer Jeremy Barnum said on a conference call with analysts this week, referring to products such as credit cards. “We don’t really see revolving interest-bearing balances increasing meaningfully this year and so, as a result, that remains a headwind.”

There are signs that loan growth may be on the horizon. Following a flurry of spending in June, period-end card loans at both Citigroup and JPMorgan ticked up in the second quarter compared with the first three months of the year.

“As the stimulus rolls off, we expect that customers will get back to normal payment patterns and your temporary transactors will revert back to their normal revolving activity,” Citigroup CFO Mark Mason told reporters on a conference call. Despite the optimism, the total loans slipped 1% during the quarter.

While JPMorgan’s Barnum said the bank doesn’t expect any meaningful increase in interest-bearing balances on its cards this year, Chief Executive Officer Jamie Dimon disagreed.

“I don’t want to correct anyone here, but I personally think you’ll see it go up by the end of the year,” Dimon told analysts on a conference call.

Wells Fargo CFO Mike Santomassimo noted consumers’ “willingness to spend” but cautioned that it had not yet translated into loan growth. That inflection point also has yet to be seen in commercial banking, he said.

‘Turning Point’

Bank of America’s shares slipped 3.3% as of 1:30 p.m. in New York. JPMorgan was down 1%, falling for a second day after posting results. Citigroup, which signaled elevated costs, also declined 1%. Only Wells Fargo bucked the trend, amid signs that other efforts to overhaul operations are making progress.

For Bank of America, the second quarter marked a “turning point” for loan growth, said Chief Financial Officer Paul Donofrio, who anticipated increases in both the consumer and commercial parts of its business. While the firm’s loan balances remained down from a year earlier, they grew from the first quarter -- the first sequential increase in a year.

Still, Bank of America stopped short of reiterating a forecast that net interest income would be about $1 billion higher at the end of the year than the $10.3 billion the bank posted in the first quarter. The bank missed analysts’ estimates for the metric, a gauge of revenue from customer-loan payments minus what the company pays depositors.

“This was the quarter where you saw the evidence that we were all looking for that loans were going to start growing,” Donofrio said Wednesday.

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