NEW YORK (AP) – The nation’s largest banks are expected torenewed confidence that pandemic-battered consumers and businesses can repay their debts and start borrowing again. The pandemic forced banks such as JPMorgan Chase and Bank of America to put billions of dollars into covering potentially bad loans. The brighter outlook allows banks to to the “good” pile in what are known as loan loss releases.
The sum of money put into these pools is nothing small. Across the entire banking industry – large and small banks alike – a financial institutions., according to Federal Deposit Insurance Corporation data. And a significant chunk of it – around $40 billion – was set aside by the nation’s largest
These funds, once released, are added to a bank’s bottom line when they report their quarterly profits.
Most banks are expected to report significantly improved results compared to the first quarter 2020. According to FactSet, JPMorgan is expected to register a profit of $3.09, up from 78 cents per share a year earlier. Bank of America is expected to post a profit of 66 cents per share, compared to the 40 cents a share it earned .
The banks have massive government stimulus to thank for the improvement, recovering economy, and fewer defaults than anticipated initially. In the U.S., trillions of dollars have been spent to keep individuals and businesses afloat through one-time debts or get caught up on their loans, including one from the New York Fed that showed that one in three American households use their stimulus payments to pay down debt.and the Paycheck Protection Program. Multiple surveys have shown that Americans used at least a portion of their relief payments to pay down
Further, the government has allowed banks to be more flexible in defining what loans are considered harmful or not – allowing longer forbearances and grace periods – which has kept some loans out of the “bad” pile.
ACCORDING TO FACTSET, the U.S. economy is estimated to have grown 4.9% in the first quarter after increasing by 4.3% in the fourth quarter of. Employers hired at a rapid pace in March. With more , spending is expected to pick up.
Bank stocks have reflected investors’ anticipation of improved conditions. Since Oct. 1, the KBW Bank index, which tracks the shares of two dozen large U.S. banks, has risen 66%.
from the lousy pile as the outlook for the economy has improved. In the fourth quarter, JPMorgan Chase moved $1.89 billion of the roughly $20 billion it had set aside during the from its loan-loss reserves. Citigroup moved approximately $1.5 billion of its funds last quarter as well.
According to analysts at UBS,releases for some time, potentially into the end of 2022. This is mainly because the will likely take at least a year, and banks don’t want to release the funds all in one shot.
While the loan-loss reserve releases jolt the bank’s bottom lines, investors willand non-interest revenue banks bring in this quarter. The Federal Reserve to zero to help stimulate the economy earlier in the pandemic, making it more difficult for banks to earn interest on the loans they charge to borrowers.
For example, Bank of America earned $16.1 billion in interest income in the first quarter of 2020. According to FactSet, that figure is expected to be $10.3 billion this quarter.
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