Banking: what the US bank figures mean

Status: 01/19/2022 3:09 p.m

The latest quarterly figures from the major American banks have disappointed investors’ expectations. If you look at them as an indicator of the state of the economy, they send positive signals.

By Lothar Gries,

The large American banks were not able to convince with their latest business figures. Their results were mostly below the expectations of the experts. Both the figures from JPMorgan, the largest financial institution in the USA, and the balance sheet from the renowned investment bank Goldman Sachs fell through with investors and weighed on prices.

In fact, the powerful financial groups earned significantly less in the final quarter of 2021 than in the same period last year. JPMorgan’s net income fell 14 percent. Rival Citigroup suffered an even sharper profit slump of around 26 percent. Goldman Sachs also reported shrinking profits.

Significantly fewer loan defaults

The houses earned splendidly overall in 2021. Industry leader JPMorgan alone posted a record profit of 48.3 billion dollars (42.2 billion euros) in the second year of Corona – more than all banks in the euro zone are expected to report. However, the main reason for the huge surplus was not business growth, but the release of provisions for bad loans in the amount of 9.3 billion dollars. Money that the bank had set aside as a precaution in the first year of the pandemic, but did not need now.

This is good news, as it shows that the US economy has overcome the consequences of the devastating lockdowns in the first year of the pandemic and is growing again – also this year. JPMorgan boss Jamie Dimon was confident: “The economy continues to develop well despite headwinds from Omicron, inflation and supply chain problems”. JPMorgan remains optimistic about US growth.

“Best Year Ever”

The figures from Citigroup paint a similar picture. For the full year 2021, despite the weaker final quarter, Citigroup posted a whopping 99 percent increase in profit to just under $22 billion. However, as with JPMorgan, this was mainly due to the fact that the risk provisions made for loans at risk of default due to the pandemic were reduced again.

Equally well did Bank of America, the country’s second largest bank. Thanks to drastically reduced provisions for bad loans, it almost doubled its profits last year to $32 billion. Bank Wells Fargo from San Francisco, which focuses primarily on private customers, also benefited from the economic recovery. She increased her surplus to $21.5 billion in 2021 after earning just $3.4 billion in the first year of Corona.

Booming consulting business

And something else indicates that the US economy has regained its footing: while trading in shares and bonds in particular ensured high profits in the previous year, the consulting business for takeovers and IPOs proved to be the main driver in the final quarter of 2021. At Goldman Sachs, the world’s leading investment bank, merger fever caused revenues in this area to soar by 45 percent year-on-year to $3.80 billion in the final quarter of 2021. For the year as a whole, they reached a record sum of almost 15 billion dollars, around 60 percent more than in the previous year. Bank of America CEO Brian Moynihan said 2021 was “the best year ever” for investment banking.

It remains to be seen whether the US economy will continue to grow as strongly as it did last year. The ongoing pandemic, delivery bottlenecks and staff shortages are slowing down many companies. In addition, JPMorgan CFO Jeremy Barnum warns of persistent inflationary risks with significantly rising costs. Added to this is the prospect of interest rates being raised by the central bank.

US economy continues to grow

According to a survey by the consulting firm KPMG, an end to the boom is not to be expected for the time being, at least in the case of mergers and acquisitions. The US economy should also remain on course for growth. An increase of around four percent is expected this year – enough to enable the large US banks to continue making billions in profits.

By the way, it should become clear on January 27 how Deutsche Bank performed. Then the German industry leader wants to present its figures.

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