US Banks Report a Boom in Profits as Consumer Confidence Grows

15 Apr 2021 · 3rd Party Analysis

US Banks Report a Boom in Profits as Consumer Confidence Grows

WRITTEN BY ThorFX

In Summary

  • Wall Street banks blow past expectations, report record figures
  • Consumer spending picks up as the economy recovers from the pandemic

A number of big US banks are out with first-quarter earnings this week. Three of the largest US investment banks reported bigger than expected first-quarter profits. At JPMorgan Chase, earnings grew five times. Goldman Sachs and Wells Fargo also had a strong quarter. They all benefited from the boom in investment banking, hot capital markets, and lower credit costs.

To many economists and analysts, the stellar earnings came as no surprise. A relatively easy comparison could be made with last year’s first quarter, which happened to be at the onset of the pandemic. Uncertainty was high and investment banks were afraid to cut deals. This quarter, investment banks on Wall Street notched records as confidence in the US economy has returned.

Goldman Sachs profits rose to a record level, alongside revenue, driven by a swift economic recovery. Goldman posted a quarterly profit of $6.84bn, or $18.60 a share, on revenue of $17.7bn. Both figures were up considerably from a year ago. In the first quarter of 2020, the investment firm posted profits of $1.2bn on revenue of $8.7bn. Trading revenue for Goldman rose 47% from a year ago to $7.6bn.

Positive Spending Patterns Identified

“The environment, the monetary and fiscal stimulus, in addition to the economic recovery, continues to paint a relatively constructive background, but I don’t think the expectation should be for it to continue at the pace we saw in the first quarter,” Goldman CEO David Solomon said. Shares in the bank rose 2.34% on the day of the release. For the first quarter, Goldman stock has advanced more than 23%.

JPMorgan notched its highest-ever quarterly profit, driven by peak revenue from trading stocks. The largest US bank reported a record quarterly profit of $14.3bn, or $4.50 a share, well above the consensus of $3.10 a share. Compared with a year ago, JPMorgan reported a quarterly profit of $2.87bn, or $0.78 a share. Revenue is also substantially higher, at $32.27bn, up 14% from a year ago.

Corporate and investment bank profit grew almost threefold to $5.74bn, a record level for a quarter, while revenue rose 46% to $14.6bn. Trading revenue for the bank is up 25% from a year earlier. Revenue in consumer business fell 6%, whereas, in asset and wealth management, revenue rose 20%. JPMorgan shares are up more than 21% year-to-date. On Wednesday, following the news, shares in the bank dropped 1.85%.

“With all of the stimulus spending, potential infrastructure spending, continued Quantitative Easing, strong consumer and business balance sheets and euphoria around the potential end of the pandemic, we believe that the economy has the potential to have extremely robust, multi-year growth,” JPMorgan CEO Jamie Dimon said in his annual letter published last week.

Wells Fargo’s financial results also blew past forecasts. The bank with nearly $2tn in assets reported earnings of $1.05 a share on revenue of $18.1bn, beating estimates for 71 cents a share on $17.5bn in revenue. In the previous first quarter, the bank earned just 1 cent a share on $17.7bn of revenue. Shares in Well Fargo jumped 5.53% on Wednesday, following the release.

On the consumer side, JPMorgan said about 30% of the most recent round of stimulus checks went into savings. The rest went either into paying down more debt or into spending.

Bank of America and Citigroup report later today and Morgan Stanley reports first-quarter results on Friday.

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