The pandemic is over for the big banks. Now comes the hard part.

The profit plateau follows an 18-month maniac. Banks spent much of 2020 stockpiling tens of billions of dollars to prepare for losses on consumer and business loans, which drove their profits down sharply. The improving economy has allowed banks to release most of these loan loss reserves. Profits have increased.

These pandemic jolts masked lackluster growth in banks’ lending activity and temporarily inflated business revenues. Analysts are trying to figure out what the new normal looks like.

Bank stocks were among the best performers of the year, but their hot streak has cooled. The KBW Nasdaq Bank Index, up nearly 40% this year, barely moved in the third quarter.

Here are some things to look for in banking profits this week.

Loan growth

The U.S. government’s efforts to keep the economy afloat during the pandemic have left individuals and businesses full of money. This means they don’t borrow.

Total loans to U.S. banks have only increased 1% since the end of June, according to data from the Federal Reserve.

In the last quarter, bank executives said increased credit card spending, especially on travel and restaurants, would fuel loan growth. Instead, customers pay off their balances and businesses don’t take out loans, executives said at recent conferences. Hopes are now for the upcoming holiday season.

“Although loan growth has been slow to recover, we believe we have reached the inflection point,” analysts at Goldman Sachs bank wrote.

Interest rate

The Federal Reserve kept interest rates close to zero, depressing bank lending profits.

The net interest margin, the amount banks give on loans minus what they pay on deposits, fell again in the second quarter, hitting a new low, according to the Federal Deposit Insurance Corp.

Analysts don’t expect much improvement in the third quarter. In the four largest banks: JPMorgan, Bank of America Corp.

BAC 0.50%

, Citigroup Inc.

VS 0.22%

and Wells Fargo & Co.

WFC 0.50%

– Analysts expect profits and loan margins to remain stable for the fifth consecutive quarter.

The Fed is unlikely to raise rates until next year. Bank executives can expect to wonder how much they can make when rates rise and what will happen if the Fed does not act as expected.

Markets

Frantic business activity has been a bright spot for Wall Street since Covid-19 ravaged the economy, but it is fading.

Income from equity trading is still above pre-pandemic levels, bank executives said at recent conferences, but income from fixed income is expected to fall.

Deutsche Bank analysts have predicted a 5% increase in market revenues among the banks it covers, with a 14% increase in share trading. They expect a 20% drop in income from fixed income, currencies and commodities.

investment bank

Yet a big business is booming: investment banking. Global mergers are at an all-time high and underwriting volumes are high, especially for IPOs and high yield bonds.

Jefferies Financial Group Inc.

third quarter tax results, released on september 30, offer a snapshot of the environment facing the biggest rivals. The company’s investment banking fees doubled to a record high. Managing Director Richard Handler said Jefferies’ backlog of potential transactions is as large as it ever was.

Write to David Benoit at [email protected]