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Bank chiefs cite prospects for a rebound this year after unprecedented action by lawmakers and the U.S. Federal Reserve averted a worse crisis.
Wall Street’s worst fears about the Covid-19 fallout are dissipating.
Three of America’s biggest lenders – JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. – reduced their combined loan loss reserves by more than $ 5 billion, helping the highest estimates of low rates of interest.
When the results were released on Friday, executives expressed cautious optimism about a fiscal stimulus and rising vaccinations during a pandemic in which delinquencies remained low. Yet the banks have warned that the economy is not yet out of the woods.
Six of America’s biggest banks urgently set aside more than $ 35 billion to cover loan losses in the first half of 2020, with the message they just didn’t know what to expect. Now, the chiefs of the banks foresee prospects of rebound this year. Unprecedented action by the Federal Reserve and lawmakers dispelled the worst-case scenarios.
“We have seen further improvement in both GDP and unemployment,” Citigroup chief financial officer Mark Mason told reporters on a conference call, referring to gross domestic product. There are many favorable indicators that “lead to a more positive outlook in 2020 and hopefully a continued and stable recovery,” he said. Beyond vaccines, he highlighted more clarity on the next US presidential administration and the prospects for further stimulus.
Still, Wells Fargo and Citigroup led bank stocks lower – each falling more than 6% by noon in New York City – as investors focused on weaknesses specific to their businesses. At Wells Fargo, costs fell less than analysts estimated as the bank spent money on restructuring following scandals. Citigroup’s massive bond trading split generated less revenue than expected in the final months of 2020. JPMorgan slipped 2%.
Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley are expected to release quarterly results next week.
Consumer divisions at America’s largest banks have come under special pressure from the Covid-19 epidemic which closed businesses and put millions of people out of work last year. Despite this, loan books have performed surprisingly well since, as a terrible wave of defaults has never occurred. After business divisions enjoyed a bumper year, banks even got Federal Reserve approval to resume share buybacks last month.
As JPMorgan informed analysts, Bank of America’s Erika Najarian asked if government support had been strong enough to carry credit card borrowers, for example, through the pandemic.
“It feels like at this point in this crisis that the bridge has been strong enough – the question that remains is, is the bridge long enough,” CFO Jennifer Piepszak said at the conference call. “But we have to go through the next three to six months.”
JPMorgan reduced its reserves by $ 2.9 billion, helping to boost fourth-quarter profits to a record $ 12.1 billion. Citigroup released $ 1.5 billion from its inventory, which resulted in a profit of $ 4.63 billion lower than analysts’ forecast. Wells Fargo has released about $ 760 million due to the drop in net write-offs. This took net income above estimates to $ 2.99 billion.
Much of the news came from corporate divisions.
Nonetheless, executives warned that there was a lot of uncertainty ahead and that defaults would increase later in the year. Jamie Dimon, CEO of JPMorgan, said the importance of reserve releases should not be overstated or viewed as recurring income.
“We don’t see this as profit – it’s ink on paper,” Dimon said.
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