WASHINGTON (Reuters) – While US bank leaders were bullish on the economic outlook on Friday, pointing to an increase in some lending activity and a rise in consumer spending, investors were skeptical of the industry’s growth prospects.
Drivers of the US economy JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co reported combined profits of $ 19 billion for the fourth quarter, each comfortably beating analysts’ estimates.
However, analysts noted that the beats were helped by stock releases and other one-off items, and that the underlying performance was less convincing.
Banking shares across the board were down 2.1%, with Wells Fargo only bucking the top six, amid concerns about declining commercial revenues and loan growth.
“Investors are concerned where growth will come from,” Viola Risk Advisors banking analyst David Hendler said. “There doesn’t seem to be much sizzle in the attack quarters.”
Bank executives said the US economy is still on a healthy trajectory, despite headwinds including a spate of Omicron infections, 7% inflation, and supply chain bottlenecks.
While loan growth, a key metric observed by analysts, was mixed, consumer lending and spending rose, they pointed out.
“The consumer is very strong,” Jamie Dimon, CEO of JPMorgan, told analysts. “Despite … Omicron, despite the supply chains, 2021 was one of the best years of growth ever,” he said.
Average loans from JPMorgan, the country’s largest lender, increased 6% year-on-year, while combined debit and credit card spending increased 26%. At Wells Fargo, lending fell 3% year-on-year, but grew 5% during the second half of 2021, thanks to its consumer and commercial portfolios.
Overall, Citigroup’s lending has remained stable in part because the companies are still full of liquidity and have other financing options, said Mark Mason, Chief Financial Officer, but the loan balances on Citigroup-branded cards in North America are increased by 3% over the previous year and spending was 24% higher.
Bank of America Corp, the country’s other major consumer goods lender, reported earnings on Wednesday.
“What we are seeing in the top three banks reporting today is not only a decent environment for Q4 loan growth, but management teams are optimistic that this will continue into 2022,” said Jason Ware, chief investment. officer of Albion Financial Group, which holds JPMorgan shares.
However, investors fear that rising inflation will hurt consumer spending, while loan growth may not be strong enough to outstrip deposit growth, meaning banks may not fully benefit from a steepening. of the yield curve with the increase in reference rates.
“It gives the idea that the economy is not as strong as we thought,” said Keith Buchanan, portfolio manager at Globalt in Atlanta.
Inflationary pressures have also weighed on spending as banks face fierce competition for hiring and are forced to pay more to recruit and retain talent, executives said.
“The hiring has been very competitive across the company,” said Mason of Citigroup. “We have seen some pressure in what you have to pay to attract talent.”
The Wall Street activities of JPMorgan and Citigroup went mostly as expected, with both of them falling sharply in trade. This was cushioned by another stellar quarter for offers.
Goldman Sachs Group Inc and Morgan Stanley, the other Wall Street trading giants, will report next week, offering further clues as to what the trading environment could look like over the rest of the year.
Analysts expect further normalization as the Fed slows and eventually completely halts its asset purchases.
“You won’t have the fixed-income trading boom you had in the low-rate environment, with companies rushing to refinance at lower rates,” Hendler said.
(Additional report by Matt Scuffham, Megan Davies, Elizabeth Dilts, David Henry, Noor Zainab Hussain, Niket Nishant and Sinead Carew; Editing by Nick Zieminski)
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