Optimistic US large financial institution chiefs launch $5bn from reserves | Banks Information
Bank chiefs point to prospects for a rebound this year after unprecedented measures by lawmakers and the US Federal Reserve held off a worse crisis.
Wall Street’s worst fears about the impact of Covid-19 are subsiding.
Three of the largest U.S. lenders – JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co. – cut their combined loan loss provisions by more than $ 5 billion, helping fourth-quarter earnings estimates despite headwinds low Interest.
While the results were released on Friday, executives were cautiously optimistic about fiscal stimulus and rising vaccinations during a pandemic where arrears have remained low. Still, the banks warned that the economy is not out of the woods yet.
Six of the largest US banks urgently allocated 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 bank bosses are pointing to prospects for a recovery this year. Unprecedented action by the Federal Reserve and lawmakers has mitigated the worst-case scenarios.
“We have seen further improvements in both GDP and unemployment,” Citigroup CFO Mark Mason told reporters on a conference call on gross domestic product. There are many favorable indicators that “make for a more positive outlook in 2020 and hopefully a sustained, stable recovery,” he said. Beyond vaccines, he pointed to greater clarity about the next US presidential administration and the prospect of additional incentives.
Still, Wells Fargo and Citigroup caused bank stocks to decline – each by more than 6% at noon in New York – as investors focused on the weaknesses specific to their company. Wells Fargo’s costs fell less than analysts had estimated, as the bank spent money on restructuring following scandals. Citigroup’s massive bond trading division generated less than expected revenue in the final months of 2020. JPMorgan was down 2%.
Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley are due to release their quarterly results next week.
The consumer departments of the largest U.S. banks were particularly under pressure from the Covid-19 outbreak, which closed businesses last year and left millions of people unemployed. Even so, loan books have done surprisingly well since then, as a dreaded onslaught of defaults has never leaked. After benefiting from a busy year for trading, banks even received approval from the Federal Reserve last month to resume share buyback.
When JPMorgan briefed analysts, Bank of America’s Erika Najarian asked whether government support was strong enough to, for example, guide credit card borrowers through the pandemic.
“At this point, in this crisis, the bridge appears to be strong enough – the question that remains is whether the bridge is long enough,” said CFO Jennifer Piepszak on the conference call. “But we have to survive the next three to six months.”
JPMorgan trimmed reserves by $ 2.9 billion and boosted fourth-quarter earnings a record $ 12.1 billion. Citigroup released $ 1.5 billion from its inventory, resulting in a profit of $ 4.63 billion, which was below analysts’ forecasts. Wells Fargo has released approximately $ 760 million due to lower net depreciation. This increased net income over the estimates to $ 2.99 billion.
A large part of the publications came from corporate divisions.
However, executives warned that there is a lot of uncertainty ahead and the likelihood that defaults will increase later in the year is high. Jamie Dimon, chief executive officer of JPMorgan, said the importance of reserve releases should not be overstated or viewed as recurring income.
“We don’t consider it profit – it’s ink on paper,” said Dimon.