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As the US economy continues to recover from the COVID-19 crisis, the nation’s largest banks are hoping for a solid rebound in loan growth in the coming quarters.
In earnings reports covering the three months ended June 30, the four largest banks failed to significantly increase their loan portfolios, instead turning to non-interest income sources like the Bank of investment to increase their income.
At JPMorgan Chase (JPM) and Citigroup (C), loans were little changed from the same quarter last year. At Bank of America (BAC) and Wells Fargo (WFC), average loan and lease balances were down 11% and 12%, respectively, compared to the same quarter last year.
But the country’s biggest bankers say green shoots are emerging for loan growth in the near future.
“We’re talking about declining loans. The consumer – the pump is on,” JPMorgan Chase CEO Jamie Dimon said Tuesday. up, their confidence is rising. “
Bank of America CFO Paul Donofrio also said he expects loan growth to return, noting that his bank’s loan and lease balances have increased quarter to quarter. the other.
“We think this is the quarter where you’ve seen proof that we’re all looking for loans to start increasing,” Donofrio told reporters Wednesday morning.
For the banking sector, which relies on loans to generate interest income, the lack of loan growth has forced other banks to look to other sources of income to generate profits in the second quarter.
Wells Fargo, for example, looked to its venture capital and private equity affiliates to generate a 37% increase in its non-interest income. Wells Fargo stocks were the only big bank stocks to trade positively in Wednesday’s trading session.
The big banks have also received a financial boost by freeing up provisions for credit losses, reserves that the industry has built up to absorb the potential shock of borrowers unable to pay their debts. With the economic rebound underway and losses less severe than expected, banks continue to release these reserves.
At Citigroup, these publications reduced the cost of credit to enable the company to generate revenues above estimates. Ultimately, the share buybacks helped improve Citi’s earnings per share.
But Mike Mayo, banking analyst at Wells Fargo, said loans will ultimately be short-term banking history. Arguing that the pace of investment banking is likely to slow, Mayo said consumer credit products like credit cards could pick up at banks like JPMorgan Chase.
“Loan growth will come back. It’s not a question of if, just when, ”Mayo told Yahoo Finance on Tuesday.
Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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