Daily Management Review

Despite Optimism By Chiefs Of Largest US Banks, Investors Sceptic Of Banking Sector Growth


Despite Optimism By Chiefs Of Largest US Banks, Investors Sceptic Of Banking Sector Growth
Investors on Wall Street remained skeptical of the prospect of growth of the banking sector even though the chiefs of the largest United States banks remained optimistic on the economic outlook on Friday as they noted a surge in some lending businesses as well as an increase in consumer spending.
For the fourth quarter of 2021, a combined profit of $19 billion was reported by the bellwether banks of the US economy - JPMorgan Chase & Co, Citigroup Inc, and Wells Fargo & Co, with each of the banks easily eclipsing profits anticipated by analysts.
However, according to analysts, the estimate beating profits were driven primarily by reserve releases and other one-off items and pointed out that the banks’ underlying performances were not as compelling as displayed by their estimate beating profits.
Shares of banks right across the sector were down by 2.1 per cent and the stocks of only Wells Fargo among the top six US banks showed a positive move even as the market remained worried by a reduction in revenues from trading revenues and growth in loan uptake.
"Investors are concerned about where growth is going to come from," said Viola Risk Advisors bank analyst David Hendler. "There doesn't seem to be much sizzle in the forward quarters."
Despite obstacles such as the surge of Omicron infections, inflation rates at 7 per cent, and bottlenecks in global supply chains, bank executives indicated the US economy is still on a healthy path.
Even though the growth of loan uptake, a key indicator that is followed by analysts, bank executives noted out that consumer lending and expenditure were up.
"The consumer is very strong," JPMorgan CEO Jamie Dimon told analysts. "Despite ... Omicron, in spite of supply chains, 2021 was one of the best growth years ever," he said.
Average loans at JPMorgan, the largest lender in the US, increased by 6 per cent year over year, while total debit and credit card spending increased by 26%. Loans at Wells Fargo declined 3 per cent year over year in the first half of 2021, but climbed by 5 per cent in the second half of last year, driven by consumer and commercial portfolios of the bank.
Citigroup's overall lending remained flat, partly due to the fact that companies still have enough cash with them and have access to other options of financing, according to Chief Financial Officer Mark Mason. However, loan balances on Citigroup-branded cards in North America increased by 3 per cent year over year and spending increased by 2 per cent.
On Wednesday, Bank of America Corp, the country's other big consumer lender, will announce earnings.
"What we are seeing across the three major banks that reported today is not only a decent environment for loan growth in the 4th quarter but management teams' optimistic this will continue into 2022," said Jason Ware, chief investment officer for Albion Financial Group, which holds JPMorgan shares.
Investors are concerned that rising inflation would damage consumer spending, and that loan growth will not be strong enough to exceed deposit growth, implying that banks will not profit fully from a steepening yield curve as benchmark rates climb.
"It gives the notion the economy isn't as strong as we thought it was," said Keith Buchanan, portfolio manager at Globalt in Atlanta.