Bank profits soar, helped by mergers frenzy, fewer bad debts

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NEW YORK (AP) – It’s good to be a bank right now. Four of America’s largest banks said their …

NEW YORK (AP) – It’s good to be a bank right now.

Four of the largest U.S. banks said their profits rose double-digit in the last quarter as a healthier U.S. economy helped reduce the number of defaulted loans or the bank is unlikely to recover. Results from Citigroup, Bank of America, Wells Fargo and Morgan Stanley also show that all four have enjoyed various one-time increases in their profits.

The only obstacle facing the big Wall Street banks appears to be low interest rates, which have put some pressure on the banks’ ability to grow their profits. Some of them, like Bank of America, are making up for it by lending significantly more than they did in the first months of the pandemic, a sign of confidence in the US economy.

Bank of America said its net profit rose 58% to $ 7.26 billion, or 85 cents per share. That exceeded estimates by Wall Street analysts who were looking for earnings per share of 70 cents, according to FactSet. Meanwhile, Wells Fargo posted a 59% jump in profits from the previous year.

Both banks have benefited from the ability to cancel certain funds set aside at the start of the pandemic in the event of default. These billions of dollars in potentially distressed loans were reallocated to the “good” side of the banks, resulting in one-off increases in bank profits.

Wells and BofA’s results echoed Wednesday’s results from JPMorgan Chase, which also saw profits rise sharply in the last quarter as more loans were released from its distressed loan portfolio.

Wells, the nation’s largest mortgage lender, said its net interest income was “stabilized”, believing it to be 5% lower than the same period last year.

The bank released $ 1.7 billion from its loan loss reserves. Wells had set aside $ 8.4 billion to cover potentially bad loans in the second quarter of last year at the height of the pandemic, when millions of Americans lost their jobs and the economy shrank. effectively collapsed.

Kyle Sanders, an analyst at Edward Jones who covers Wells Fargo, said “results were still strong and reflected improving economic conditions.”

However, there is not an endless supply of bad debt that banks can tap into to boost their profits, and at some point investors will want to see these banks post profits from growing their business or billing. higher loans. Interest income from Wells and BofA fell from a year ago, due to the Federal Reserve keeping interest rates at ultra-low levels.

Unlike its competitors, Bank of America saw its interest income increase in the quarter compared to a year ago, in part due to a pickup in lending activity. The bank’s loans were up $ 21 billion from the previous three months, excluding the Small Business Paycheck Protection Program. This is a significant increase in loans over a short period of time.

Meanwhile, the good results of Morgan Stanley – which has very little consumer banking business – have been boosted by the abundance of mergers and state-owned companies this year. In the United States alone, 94 initial public offerings raised $ 28 billion, the highest number of IPOs for a third quarter since 2000, according to Renaissance Capital.

Morgan Stanley’s investment banking fees jumped 67% from a year earlier, and advisory fees tripled.

Financial conglomerate Citigroup – which has both a large consumer banking franchise, especially in credit cards, but also a large investment banking franchise – has benefited from both trends. Its profits jumped 48% from the previous year, helped by the fact that Citi also released bad debts from its books to the tune of $ 1.2 billion.

Like Morgan Stanley, Citi was boosted by the rise in the stock market and the interest of companies in going public or merging. The income of the investment bank was almost 40% higher than a year ago.

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Business writer Damian Troise contributed.

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