Banks, After Bracing for Disaster, Are Now Ready for a Boom

Analysts expect banks to post a big increase in profits, propelled by the release of rainy-day reserves

MÁS INFORMACIÓN →

The accelerating economic recovery is likely to boost bank profits.

Encouraged by government efforts to pump money into the economy and signs that Americans are spending more, the largest financial institutions are expected to release some of the rainy-day money they set aside after the coronavirus pandemic hit. That will offer a jolt to their income in the first three months of the year.

JPMorgan Chase JPM -0.21% & Co., Wells Fargo WFC 0.67% & Co. and Goldman Sachs GroupInc. GS 0.31% will disclose financial results on Wednesday. Bank of America Corp. BAC 0.18%and Citigroup Inc. C 0.37% report Thursday and Morgan Stanley MS -0.67% follows on Friday. Analysts forecast that all of them will post first-quarter profits that are far above year-earlier levels.

Already, investor expectations are high. The KBW Nasdaq Bank Index, which tracks shares of the largest lenders, is up 27% so far this year, nearly triple the gains of the S&P 500.

Banks are seen as proxies for the health of the U.S. economy. Their shares were in the doldrums around this time last year, when global commerce ground to a halt. But over the past few months, the stocks have bounced back. The index returned to a record in March, topping its prior high from 2007.

“The U.S. economy will likely boom,” JPMorgan Chase Chief Executive Jamie Dimon wrote in his annual letter last week. “This boom could easily run into 2023 because all the spending could extend well into 2023.”

Banks had set aside tens of billions of dollars in reserves to prepare for a wave of loan losses. Those reserves were booked against profits, depressing income for the first half of last year.

With banks gaining confidence in the rebound, analysts expect them to release those reserves, which will in turn juice their bottom lines.

Banks still have some challenges to confront as business returns to normal. Low interest rates have weighed on the spread between what banks pay to borrow and what they earn from lending, depressing the profitability of their bread-and-butter businesses.

Moreover, the largest lenders would like to increase the amount of credit they extend to businesses and individuals, but loan demand has been soft. Executives say they hope that demand will pick up later this year.

Some of the business lines that shined during the pandemic are now cooling off. Low rates drove mortgage lending to record levels. As rates have risen, originations have declined. While they remain at high levels, the drop may eat into the fees banks earn from making home loans.

Trading and investment banking have been bright spots throughout the pandemic. In the first three months of the year, that likely continued because of hot demand for special-purpose acquisition companies.These shell companies raise money through initial public offerings, then merge with businesses to take them public without the typical red tape of an IPO. In the first three months of the year, more SPACs went public than in all of 2020. Banks typically earn money by underwriting the IPOs and advising on the mergers.


These shell companies raise money through initial public offerings, then merge with businesses to take them public without the typical red tape of an IPO. In the first three months of the year, more SPACs went public than in all of 2020. Banks typically earn money by underwriting the IPOs and advising on the mergers.

The improving economic outlook also means regulators have once again allowed banks to buy back their own stock in the first quarter. However, the amount of buybacks and dividend distributions they undertake can’t exceed the average quarterly profit from the four most recent quarters. Those restrictions are due to lift after the end of June.

Puntuación
Posición en Iberoamérica
1
Juan Esteban Saldarriaga
Vice President at Alianza FinTech Iberoamerica | Co-Founder Rapicredit | ColombiaFinTech.co
24.4
5
3
Diego Molano
Consultor internacional en temas de TIC e innovación
19.4
18
4
David Velez
Founder and CEO at Nubank
17.0
27
5
Martin Schrimpff
Co-Founder of Zinobe | Founder of PayU | Founder Pagosonline.net
15.6
32
6
Ángel Sierra
Director Ejecutivo en Asociación FinTech e InsurTech de Chile | Member of Alianza FinTech Iberoamerica
14.8
39
7
Paula Cardenas
Business Manager at AEFI | Founder Member FinTech IberoAmérica
14.5
42
8
Clementina Giraldo
FinTech & AgTech in Latin America
11.8
60
9
Juan Francisco Schultze-Kraft
Board Member – Vicepresident at Colombia FinTech | PayU Legal
11.4
63
10
Daniel Rojas
CEO & Co-Founder at Rocket.la
10.1
69
11
Alan Colmenares
Digital Transformation Enablement – Latam at Microsoft
7.3
89
12
Laura Gaviria Halaby
Global Head FinTech Acceleration at Citi | Chief Acceleration Officer at TheVentureCity
6.3
101
13
Diego Alejandro Guzman Guevara
CEO and Co Founder at Bankity
6.2
104
14
Andres Ramirez Sierra
CEO at Banlinea LATAM
6.2
105
15
Daniel Navarro
CEO & CoFounder at NIMMÖK
6.1
109
16
Fernando Sucre
CEO at ComparaMejor
5.9
110
17
Andres Villaquiran
Founder & CEO Alkanza
5.3
119
18
Carlos Castañeda Olaya
Open innovation leader at Accenture | Country Manager at Wayra
5.2
123
19
Marisol Camacho
Director of Corporate Relations at Bancóldex | Director of Mindset at iNNpulsa Colombia
4.6
131
20
Felipe Valencia
Partner at Veronorte
3.7
143
Conoce más de estas Fintechs
Las empresas Fintech mencionadas en este artículo ya no hacen parte de la Asociación. Por lo tanto, Colombia Fintech no puede dar una recomendación positiva o negativa de la calidad de sus ex miembros, ni asume ninguna responsabilidad por ello.
Las opiniones compartidas y expresadas por los analistas son libres e independientes, y de ellas son responsables sus autores. No reflejan ni comprometen el pensamiento u opinión de Colombia Fintech, por lo cual no pueden ser interpretadas como recomendaciones emitidas por la Asociación. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista sobre el ecosistema Fintech.