The Pandemic’s Over for Big Banks. Now Comes the Hard Part. – The Wall Street Journal

Banks are moving past the pandemic that sent quarterly profits on a wild ride. That is drawing attention to their weak spots.

America’s biggest banks report third-quarter earnings this week, starting with JPMorgan Chase JPM 0.08% & Co. on Wednesday. Analysts expect banks in the S&P 500 to report aggregate profits of about $31 billion, up about 20% from a year ago but down 20% from the second quarter, according to FactSet. Profits are expected to hold steady in the fourth quarter.

The profit plateau follows a manic 18 months. Banks spent much of 2020 stockpiling tens of billions of dollars to prepare for losses on consumer and commercial loans, which sent their profits down sharply. The improving economy allowed banks to free up most of those loan-loss reserves. Profits rose.

Those pandemic blips concealed lackluster growth in banks’ lending business and temporarily swelled trading revenue. Analysts are trying to figure out what the new normal looks like.

Bank stocks have been among the year’s best performers, but their hot streak has cooled. The KBW Nasdaq Bank Index, up nearly 40% this year, barely budged in the third quarter.

Here are a few things to look for in bank earnings this week.

Loan Growth

The U.S. government’s efforts to keep the economy afloat during the pandemic left individuals and businesses flush with cash. That means they aren’t borrowing.

Total loans at U.S. banks are up just 1% since the end of June, according to Federal Reserve data.

Last quarter, bank executives said increased credit-card spending, especially on travel and dining, would fuel loan growth. Instead, customers are paying off their balances and businesses aren’t drawing down loans, executives have said at recent conferences. Hopes are now resting on the coming holiday season.

“Though loan growth has been slow to recover, we believe that we have reached the inflection point,” Goldman Sachs bank analysts wrote.

Interest Rates

The Federal Reserve has kept interest rates near zero, depressing banks’ lending profits.

Net interest margin, the amount banks make on lending minus what they pay on deposits, fell again in the second quarter, plumbing a new low, according to the Federal Deposit Insurance Corp.

Analysts aren’t predicting much of an improvement in the third quarter. At the four biggest banks—JPMorgan, Bank of America Corp. BAC 0.50% , Citigroup Inc. C 0.22% and Wells Fargo & Co. WFC 0.50% —analysts expect both lending profits and margins to remain flat for the fifth straight quarter.

The Fed isn’t likely to raise rates until next year. Bank executives can expect to face questions about how much they can make when rates increase, and what will happen if the Fed doesn’t move as expected.


Frenetic trading activity has been a bright spot for Wall Street since Covid-19 tore through the economy, but it is fading.

Stock-trading revenue is still above pre-pandemic levels, bank executives have said at recent conferences, but fixed-income revenue is expected to tumble.

Deutsche Bank analysts projected a 5% increase in markets revenue among banks it covers, with a 14% increase in equities trading. They expect a 20% drop in fixed-income, currencies and commodities revenue.

Investment Banking

Still, one big business is booming: investment banking. Global mergers are on a record pace and underwriting volumes are high, particularly for initial public offerings and high-yield bonds.

Jefferies Financial Group Inc.’s fiscal third-quarter results, released Sept. 30, offer a glimpse of the environment bigger rivals are seeing. The firm’s investment-banking fees doubled, hitting a record. Chief Executive Richard Handler said Jefferies’s backlog of potential deals was as big as it has ever been.

JPMorgan Chase kicks off earnings season for large U.S. banks on Wednesday.

Photo: Gabby Jones for The Wall Street Journal

Write to David Benoit at

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