Bankers point to the prospect of a comeback this year, after unprecedented action by lawmakers and the US Federal Reserve averted a more severe crisis.
The worst fears on Wall Street about the consequences of Covid-19 are receding.
Three of the largest U.S. lenders – JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. – reduced their combined loan loss reserves by more than $ 5 billion, helping fourth-quarter earnings estimates even as they faced low interest rates.
As they released the results on Friday, directors expressed optimism about fiscal incentives and increased vaccinations during a pandemic in which crime remained low. However, banks have warned that the economy is not yet out of the woods.
Six of the largest US banks have urgently set aside more than $ 35 billion to cover loan losses in the first half of 2020, with the message that they simply had no idea what to expect. Now the heads of banks indicate the prospects of a return this year. Unprecedented action by the Federal Reserve and lawmakers has removed the most unfavorable scenarios.
“We have seen a further improvement in both GDP and unemployment,” Citigroup chief financial officer Mark Mason told reporters in a conference call, referring to gross domestic product. There are a lot of favorable indicators that “create a more positive outlook for 2020 and, hopefully, a continuous and stable recovery,” he said. Beyond vaccines, he emphasized more clarity on the next US presidential administration and the prospects for an additional stimulus.
However, Wells Fargo and Citigroup led to a decline in bank stocks – each down more than 6% at noon in New York – as investors focused on their business-specific weaknesses. At Wells Fargo, costs fell less than analysts estimated, as the bank spent money on restructuring following the scandals. Citigroup’s massive bond trading division generated lower-than-expected revenue in the last months of 2020. JPMorgan fell 2%.
Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley are due to report quarterly results next week.
Consumer divisions at the largest banks in the United States have come under intense pressure due to the Covid-19 outbreak that closed its businesses and removed millions of jobs last year. Even so, the loan books have done surprisingly well since then, as a dreaded attack of inconvenience has never passed. After trading divisions had a flawless year, banks won Federal Reserve approval last month to resume share buybacks.
As JPMorgan told analysts, Bank of America’s Erika Najarian questioned whether the government’s support was strong enough to take credit card borrowing, for example, through the pandemic.
“Right now, in this crisis, it feels like the bridge was strong enough – the question that remains is, is the bridge long enough,” CFO Jennifer Piepszak told the conference. “But we have to go through the next three to six months.”
JPMorgan lowered reserves by $ 2.9 billion, helping profit growth in the fourth quarter to a record $ 12.1 billion. Citigroup released $ 1.5 billion out of its stock, resulting in a $ 4.63 billion profit, which fell less than analysts predicted. Wells Fargo released about $ 760 million due to smaller net discounts. This raised net income above estimates to $ 2.99 billion.
Much of the launch comes from divisions that serve corporations.
However, executives warned that there is a lot of uncertainty ahead and a likelihood that defaults will increase later in the year. JPMorgan CEO Jamie Dimon said the significance of the release of reserves should not be overestimated or considered recurring revenue.
“We don’t think it’s a profit – it’s ink on paper,” Dimon said.