Bankers point to the prospect of 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 consequences of Covid-19 are waning.
Three of the top US lenders – JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. – reduced their combined reserves for loan losses by more than $ 5 billion, helping the best quarter earnings estimates even when faced with headwinds. low interest rates.
As they released the results on Friday, executives expressed optimism about the fiscal stimulus and increased vaccinations during a pandemic in which delinquencies have been low. However, banks warned that the economy is not yet out of the woods.
Six of the largest U.S. banks have urgently set aside more than $ 35 billion to cover loan losses during the first half of 2020 with the message that they simply had no idea what to expect. Now, bank chiefs point to the prospect of a rebound this year. The unprecedented actions of the Federal Reserve and lawmakers have set the worst-case scenario.
“We have seen a further improvement in both GDP and unemployment,” Mark Mason, CFO of Citigroup, told reporters at a conference call, referring to gross domestic product. There are many favorable indicators that “make the outlook more positive in 2020 and we expect a stable and continued recovery,” he said. Beyond the vaccines, he noted greater clarity about the upcoming U.S. presidential administration and the prospects for further stimulus.
Still, Wells Fargo and Citigroup pushed bank shares down, each falling more than 6% at noon in New York, as investors focused on specific weaknesses in their businesses. At Wells Fargo, costs fell less than analysts estimated, as the bank spent money on restructuring in the wake of the scandals. Citigroup’s massive bond trading division generated less revenue than expected in the last months of 2020. JPMorgan fell 2%.
Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley will have to report quarterly results next week.
Consumer divisions at major U.S. banks came under special pressure from the Covid-19 boom that shut down businesses and stopped millions working last year. Still, loan books have gone surprisingly well, as there has never been a dreaded onslaught of defaults. After trading divisions benefited from a flawless year, banks even got Federal Reserve approval last month to restart share repurchases.
As JPMorgan told analysts, Erika Najarian of Bank of America questioned whether government support has been strong enough to bring credit card borrowers, for example, through the pandemic.
“Right now, in this crisis, it looks like the bridge has been strong enough; the question that remains is whether the bridge is long enough,” CFO Jennifer Piepszak told the conference call. “But we have to spend the next three or six months.”
JPMorgan reduced reserves by $ 2.9 billion, which helped increase fourth-quarter profits to $ 12.1 billion. Citigroup released $ 1.5 billion out of its stock, resulting in a $ 4.63 billion profit that fell less than analysts projected. Wells Fargo released about $ 760 million due to low net spending. This raised net income above estimates to $ 2.992 billion.
A large part of the launches came from business service divisions.
However, executives warned that there is a lot of uncertainty ahead and that defaults are likely to increase later in the year. JPMorgan CEO Jamie Dimon said the importance of reserve releases should not be overestimated or considered recurring revenue.
“We don’t consider it a benefit, it’s ink on paper,” Dimon said.