Loans Will Be the Key to Banks’ Future FortunesOctober 11, 2021
As investors brace for underwhelming earnings reports across much of the business world, the country’s biggest banks are expected to report solid profits this week, thanks to the central role they play in the reopening economy.
The banks’ quarterly reports will reflect a recovery that is both bumpy and shifting — their trading businesses will probably fall short of last year’s windfall, while consumer divisions will most likely fare better as vaccinated Americans spent more on goods and leisure.
“The health of the economy is the key driver for banks,” said Alison Williams, an analyst at Bloomberg Intelligence. “The consumer is out there spending — similarly, businesses look healthy.”
The results coming this week will be from a period of transition — beginning in July, when optimism was running high, and ending in September, after the Delta variant of the coronavirus had sent infection rates rising again and analysts cut their expectations for economic growth.
While infections are ebbing, plenty of factors are still causing turbulence: continued supply-chain disruptions and labor costs are contributing to inflation, and the Federal Reserve could begin dialing back some of its supports next month. And where bank results go from here will rely heavily on how confident consumers and businesses are in borrowing.
Loan growth was way down at the beginning of the pandemic and has so far been slow to recover. Consumers and businesses benefited significantly from government stimulus efforts, which reduced demand for credit and helped them pay off their debts or amass more cash on hand.
But Richard Ramsden, an analyst at Goldman Sachs, wrote in a recent report that demand for loans was showing signs of increasing.
“We believe that we have reached the inflection point,” he wrote. “We see the outlook as increasingly encouraging.”
The first major bank to disclose results this week will be JPMorgan Chase, which analysts expect will report higher earnings on Wednesday. Four other firms — Bank of America, Wells Fargo, Citigroup and Morgan Stanley — will post earnings on Thursday, with Goldman Sachs reporting on Friday.
Some of the gains will probably come from money that lenders already have on hand as they pare down the rainy-day funds they set aside earlier in the pandemic to protect against high default rates that never materialized, thanks to government stimulus efforts.
The banks’ Wall Street operations are expected to report strong results from deal-making. JPMorgan’s investment bank benefited from a “very robust” environment, with a better-than-expected performance in mergers and acquisitions, Marianne Lake, its co-chief executive of consumer and community banking, said at an investor conference last month.
But trading revenue — which soared early in the pandemic during a gusher of market activity — will probably fall about 10 percent compared with a year earlier, she said. Analysts…