Throughout this week, market participants have digested the string of third-quarter earnings reports from the US’s biggest banks against the backdrop of the ongoing coronavirus pandemic.
Bank of America, Wells Fargo, JP Morgan Chase, and Citigroup all posted year-over-year losses in consumer and business lending. Despite their underwhelming performance, the banking giants all voiced hopes that the worst of the pandemic has passed, and they are on the way to recovery.
According to Yahoo Finance, the banks predicted that interest revenue would stagnate after the Federal Reserve implemented all-time low interest rates in the spring. In the months since then, executives have had time to weigh the fallout of the central bank’s move and share a more upbeat sentiment for the future of the country’s economic recovery.
In a Wednesday call with reporters, Paul Donofrio, the CFO of Bank of America, said, “We think we’ve reached a trough in [net interest income] and we should begin to see NII move sideways or higher in subsequent quarters.”
Similarly, leaders at Citigroup referred to the last quarter as a period of “stabilization.” On Tuesday, the bank’s CFO, Mark Mason, told economists that revenue from consumer and business loans would expand “as hopefully COVID diminishes a bit.”
The big banks all reported a substantial slowdown in third-quarter loan loss provisions, a core gauge banks use to determine their ability to handle losses stemming from defaulted loans. Altogether, Bank of America, Wells Fargo, JP Morgan Chase, and Citigroup saw a combined loss of $5 billion in loans. In contrast, they reported second-quarter provisions worth $33 billion, when the pandemic was at its peak.
JPMorgan Chase’s reserves fell over the previous quarter, but Jennifer Piepszak, the firm’s CFO, warned that it does not translate to short-term credit standing improvements. “The reserve release was largely on portfolio run-off and changes in exposure in wholesale [loans], so not a reflection of a change in our outlook,” she remarked Tuesday.
In a Tuesday interview with Yahoo Finance’s The Final Round, Gerard Cassidy, RBC Capital Markets analyst, said that the returns on each institutions’ shares rely on the economy’s strength in the following six months. “What’s really going to be the tale of the tape on the future for credit losses will be the strength of the fourth quarter and first quarter of the economy.”
The finance giants provided moderately favorable outlooks for the country’s economic progress, hinting that they might begin clearing reserves in the upcoming months. Still, there is considerable ambivalence around their predictions.
In one case, Mason noted Citigroup’s optimistic projection relies on a degree of federal stimulus within the first quarter next year. On the other hand, Bank of America’s Donofrio stated that his firm did not account for additional funding when it began its reserves.
Currently, both chambers of Congress and the White House continue to feud over the next piece of legislation, and many doubt that a bill will pass before the election. While lawmakers negotiate, financial institutions are depending on revenue sources other than interest.
Like JP Morgan Chase and Citigroup, those with more robust trading desks executed fixed-income markets with a respective 6% and 18% year-over-year growth for FICC exchanges. Meanwhile, Bank of America reported a 2% decline over last year, while Wells Fargo posted similar results.
- Cheung, Brian. “Big Banks Are Cautiously Optimistic about the Economic Recovery.” Yahoo! Finance, Yahoo!, 14 Oct. 2020, finance.yahoo.com/news/big-bank-earnings-wrap-up-october-2020-202331631.html.