Banks beat profits, express optimism for 2021
The banking titans Citigroup, JPMorgan and Wells Fargo all declared income yesterday and, like Jack Sparrow escaping from the East India Trading Company, everything went surprisingly well.
- JPMorgan and Citi far exceeded analysts’ expectations, and Wells Fargo increased quarterly profits by 5%.
Zoom out: 2020 has been a strange year for banks. The home buying boom has led to a rush mortgage arrangements, which are cash cows for the banks that support them. And a series of successful IPOs like DoorDash and Airbnb have helped boost underwriting income.
- But banks have also set aside record amounts for rainy day funds during the year in case a deluge of defaults occurs from businesses hit by coronaviruses.
The flood never came
Thanks to Congressional economic stimulus measures and considerable assistance from the Federal Reserve, defaults have been relatively in check. Now, given the arrival of vaccines and Biden’s plans for more help, banks are starting to put their umbrellas away.
- JPMorgan and Citi both reduced their cash reserves, freeing up $ 2.9 billion and $ 1.5 billion, respectively.
Yet the general attitude on Wall Street is to walk before you run. “Our credit reserves of over $ 30 billion continue to reflect significant near-term economic uncertainty,” said Jamie Dimon, CEO of JPMorgan. noted in a report.
Wells Fargo and Citi, meanwhile, are still trying to correct some unforced errors. Wells Fargo paid an additional $ 321 million in fourth quarter customer refunds as it tried to end the fake account scandal that erupted Four years ago in the rearview mirror. Citi is also revamping its internal risk controls after it accidentally sent a group of lenders nearly $ 900 million in August 2020.
At the end of the line : Banks feel particularly motivated to get back on track in 2021; the Fed gave the industry the green light to restart share buybacks in the first quarter.