Bankruptcies were ultimately limited thanks to the aid. The banks are quite optimistic for the coming months.
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US banks JPMorgan Chase, Wells Fargo and Goldman Sachs saw their profits jump in the first quarter, taking advantage of the improving economy to reduce their reserves and healthy financial markets.
JPMorgan Chase’s net income increased five-fold to $ 14.3 billion, Wells Fargo’s seven-fold to $ 4.74 billion while Goldman Sachs posted a record net profit of $ 6.8 billion.
Faced with the economic crisis caused by the pandemic, financial institutions had set aside billions last year to deal with possible delinquencies from their customers.
But individuals and many companies having been supported by aid from the American authorities, bankruptcies were ultimately limited. And the banks are quite optimistic for the months to come.
JPMorgan Chase accordingly reduced its reserves by $ 5.2 billion and Wells Fargo by $ 1.6 billion.
The risk that customers do not repay their loans “now seems behind us,” said analyst Ken Leon of the CFRA firm.
Robust growth potential
“With all the stimulus spending, potential infrastructure spending, the pursuit of quantitative easing (led by the Central Bank), the financial health of consumers and businesses and the euphoria around the potential end pandemic, we believe that the economy has extremely robust growth potential over several years, ”noted Mr. Dimon.
His establishment lent less in the quarter, and revenues from retail banking were down 6%.
But that’s “good news,” Dimon said on a conference call.
“Consumers have so much money that they are paying off their credit card loans,” he said.
Businesses, for their part, took advantage of the large sums injected by the US Central Bank (Fed) last year to raise money on the markets and repay loans to banks, Dimon added.
At Wells Fargo, too, consumer and small business banking was down 6% from the first three months of 2020, due in part to remaining low interest rates and weak demand for loans.
Although they recovered a little during the quarter, rates remain at a historically low level. This weighs on the profitability of universal banks like JPMorgan and Wells Fargo, which make less money when they lend to individuals and businesses.
Investment bankers and traders
The giants of Wall Street, on the other hand, profited well from the intense activity on the financial markets at the beginning of the year, where the indices climbed to new heights and IPOs multiplied.
Goldman Sachs has seen the turnover of its investment banking business – when the establishment helps companies raise money in the markets or conduct a merger and acquisition operation, for example – jump by 73% to achieve record turnover.
Income from the brokerage of stocks, commodities, bonds and other financial products rose 47%.
At JPMorgan, merchant banking revenues soared 46%.
“The question now is whether the performance of the first quarter can be repeated until the end of the year,” says Leon. “For the moment companies and investors seem ready to continue to take risks (…). Now is the perfect time for investment banks. ”
One of the risks in the markets is that accelerating growth will push up inflation and cause the US central bank to tighten the cash on hand, Goldman Sachs CEO David Solomon said during the report. a conference call. But this is not the most likely option “in the short term”, according to him.
On Wall Street at mid-session, the stock of JPMorgan Chase fell 1% while that of Goldman Sachs took 3.5% and that of Wells Fargo 5.1%.
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