Since the beginning of this year, investors have always been enthusiastic about US bank stocks.
Economic recovery has driven the rise of cyclical sectors. The financial sector in the S&P 500 index has increased by by this year, second only to the energy sector. During the same period, the S&P 500 index rose by 17%. Benefiting from the hot capital market and abundant liquidity, the six major industries in the third quarter generally exceeded expectations. In the future, the yield curve of US bond will steeper, consumer demand elasticity and economic prospects in the post-epidemic era are expected to bring new guarantees to the performance of bank stocks. Wall Street is waiting for the subsequent loan demand to further recover.
Investment banking and wealth management have become highlights
As an important weather vane of the real economy, the performance of the banking industry has been widely paid attention to at the beginning of each financial report quarter. After the second quarter's performance exploded, the revenue growth rate of major banks generally fell from 7 to September, and the net profit growth slowed down, with an average year-on-year increase of 45%, but it is still higher than the historical average. points, non-performing loan provisions exceeded expectations and increased profit performance, while strong growth in stock market trading, wealth management expenses and investment banking sectors exceeded expectations, showing that the economic recovery entered a stable period after experiencing a rapid rebound in the early stage.
The provisions of non-performing loans of six major banks released nearly US$6 billion in the last quarter, strengthening the profit base. The sudden outbreak of the epidemic last year caused the "hard-hit areas" such as the hotel industry, tourism industry, and catering industry to be in turmoil. Financial institutions provided a loan repayment grace plan, allocating more than US$35 billion to make up for potential loan losses. As the government's special stimulus and the corporate loan subsidy bill implemented and produced positive effects, these funds were gradually released. Major banks all mentioned in their financial reports that vaccination has effectively suppressed the impact of the virus on the economy, and family consumption and business activities are returning to normal.
The trading boom that started in the second quarter of last year is still continuing. The loose monetary policies of the Federal Reserve and the global central bank inject sufficient liquidity into the market, investors are enthusiastic, and the growth of trading revenue of the six major banks in stock markets is generally better than market expectations. Morgan Stanley CEO James Gorman said in his financial report that investors all hope to trade with favorable factors such as global GDP (GDP) growth, huge fiscal stimulus, and record low interest rates.
Wealth Management business has become another major growth pole in performance. For example, JPMorgan Chase's asset and wealth management division revenue increased by 21% to $4.3 billion. Affected by the rise in the stock market, assets managed increased by 17% to $3 trillion. Morgan Stanley's wealth management unit revenue rose 28% to a record high of $5.94 billion, while Goldman Sachs' wealth management unit revenue increased by $2.02 billion, a year-on-year increase of 35%.
experienced a brief sluggish post-epidemic. Various financial institutions have continued to make efforts in investment banking business. The loose monetary conditions have driven record volumes of mergers and acquisitions and initial public offerings (IPOs), pushing up transaction fees and consulting fees-related income. Refinitiv data shows that global merger and acquisition transaction volume reached US$1.5 trillion in the third quarter, a record high. Renaissance Capital statistics show that in the United States alone, 94 initial public offerings (IPOs) companies raised US$28 billion between July and September, which is the largest number of IPOs in the same period since the third quarter of 2000. Goldman Sachs , JPMorgan Chase and Morgan Stanley's investment banking business profits increased by more than 50% year-on-year in the last quarter.
Barclays released a report saying that the pace of corporate mergers and acquisitions in the future has "lasting power" because many companies began to re-examine their original business models after the epidemic. Historically, the biggest potential interference to mergers and acquisitions activities is market fluctuations. However, in the near future, global economic activities seem to gradually improve.
Consumption recovers slowly credit recovery
Behind the economic recovery, US household consumption has maintained steady growth, Wells Fargo CEO Charles Scharf told analysts on a financial call last week that consumers' financial situation is still strong, and customers are now keen to consume. noticed that the median personal overall deposit balance is still higher than the pre-pandemic level.The personal leverage ratio is at its lowest level in 45 years, and the debt burden is also below the long-term average.
Total consumption of Bank of America credit and debit cards increased by 21%. Candace Browning, global research director at Bank of America , pointed out that card consumption data shows that people's concerns about the new coronavirus have eased, with average daily spending in September 52% higher than the same period last year, approaching the peak level in 2019, and called it "an encouraging sign."
As the holiday season approaches, major banks are pushing discount information through various channels to join the new round of competition for credit card customers. Citi said that while the strong consumer balance sheet has some negative impacts, credit card product usage is continuing to improve. JPMorgan said about 92% of overdue loan repayments are currently repaying loans. Jeremy Barnum, the bank's chief financial officer, believes that consumption demand in the holiday season is expected to boost the steady increase in revolving credit debt revolving balances, and should be better next year.
First Financial reporters found that the loan performance of six major U.S. banks in the third quarter was mixed, JPMorgan Chase increased by 5% year-on-year, Citigroup, Bank of America and Wells Fargo declined, and loan data for banks in other regions will be released one after another starting this week. The main resistance facing banks in the U.S. at this stage is low interest rates, because net interest income accounts for more than half of U.S. banking profits. On the one hand, the Federal Reserve has lowered the federal funds rate to a historical low, while rising public savings rates and companies replacing loans with bonds also limiting credit growth in the banking industry. According to the Federal Reserve, commercial lending growth in banking bottomed in May and fell 5% in September from the same period last year.
In the context of strong demand for US consumers and the approaching node of the Federal Reserve's tightening policy, a turning point may be coming. Edward Jones banking analyst James Shanahan released a report saying that the U.S. banking industry is still attractive, and the catalyst for its performance is loan growth, especially commercial loan growth, followed by rising interest rates, and the steepening of the U.S. Treasury yield curve is an important signal. As the United States enters the late stage of recovery, it is necessary to pay attention to the impact of deposit growth and excess liquidity on operating costs .
Of course, the potential risk factors facing macroeconomic in the future cannot be ignored for the banking industry, such as the uncertainty of the new crown variant strain, the concerns about the expected impact of the Federal Reserve's interest rate hike on the economy and the US Congress' vote on the tax increase bill. In addition, the unemployment rate across the United States is still at a high level, and high prices may limit the growth of household consumption. Citi CEO Jane Fraser last week listed several major factors she was “watching closely”: inflation , the impact of in the energy crisis , and U.S. debt ceiling negotiations.
