Big Banks Cross Fingers for Credit Growth Amid Economic Recovery

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As the U.S. economy continues to recover from the COVID-19 crisis, the nation’s largest banks are looking forward to solid lending growth in the coming quarters.

In their income statements for the three months ended June 30, the four largest banks were unable to significantly increase their loan portfolios, instead turning to non-interest income sources such as investment banking to increase income.

In JPMorgan Chase (JPM) and Citigroup (C) loans remained practically unchanged compared to the same quarter last year. Bank of America (BAC) and Wells Fargo (WFC), the average loan and leasing balance decreased by 11% and 12%, respectively, compared to the same quarter last year.

But the country’s top bankers say there will be green shoots for lending growth in the near future.

“We are talking about cutting loans. Consumer – the pump is charged, “JPMorgan Chase CEO Jamie Dimon told analysts on Tuesday. “The consumer, his home value is going up, their stocks are going up, their income is going up, their savings are going up. up, their confidence has increased. “

Bank of America CFO Paul Donofrio also said he expects lending growth to resume, noting that his bank’s loans and lease balances are increasing on a quarterly basis.

“We think this was the quarter where you saw evidence that we were all looking, that loans would start to rise,” Donofrio told reporters Wednesday morning.

For the banking sector, which relies on loans to generate interest income, the lack of lending growth meant that other banks had to turn to other income streams to increase profits in the second quarter.

Wells Fargo, for example, turned to its venture capital and private equity affiliates to achieve a 37% increase in non-interest income. Wells Fargo was the only major bank stock to trade positively in the market session on Wednesday.

Big banks also got a financial boost by issuing loan loss provisions, reserves that the industry was building up to offset the potential shock of borrowers not being able to pay off their debts. In the face of economic recovery and lower losses than expected, banks continue to release these reserves.

At Citigroup, these releases have reduced the cost of credit, which has enabled the company to generate revenue that surpasses valuation. Ultimately, the share buyback helped improve Citi’s earnings per share.

But Mike Mayo, a banking analyst at Wells Fargo, said that in the short term, loans will eventually become a major topic for the banking industry. Claiming that the pace of investment banking is likely to slow, Mayo said consumer credit products like credit cards could become popular with banks like JPMorgan Chase.

“Credit growth will return. It’s not about, but when, Mayo told Yahoo Finance on Tuesday.

Brian Chung is a Yahoo Finance reporter covering the Federal Reserve, economics, and banking. You can follow him on Twitter @bcheungz

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