Investors in US banks have a good laugh: unimpressed by the Corona crisis, the shares of JP Morgan & Co. have shot up by more than 50 percent since autumn. The record hunt on the stock exchanges, a flourishing bond trade and a higher need for advice and financing by companies made the income of investment banks bubble up.
According to experts, profits at most US institutions fell in the fourth quarter because higher risk provisions for bad loans had an impact. But they estimate the prospects for 2021 better. JP Morgan, Citigroup and Wells Fargo will open the accounting season in the USA on Friday.
“You can think of the fourth quarter as a kind of transition quarter,” says Jason Goldberg, an analyst at Barclays. “Some of the challenges last year can only be seen in the rear-view mirror. The view of 2021 is better.” The vaccines could bring the corona pandemic under control later this year. Economists expect more economic growth and after the victory of the Democrats in the US Senate elections there is speculation about additional government stimulus aid.
JP Morgan and Goldman Sachs shares have both risen by 40 percent since the end of October, and Bank of America shares by as much as 60 percent. The fact that the US Federal Reserve gave the institutions in the country a good report after a stress test also made investors feel confident. So far, they have weathered the Corona crisis well and are strong enough to withstand further storms.
NO END OF THE HOUSE IN SIGHT
According to Deutsche Bank chief investment strategist Ulrich Stephan, there is no end in sight to the upward trend in US bank stocks. “In particular, banks with a strong capital market business should be able to surprise in my opinion.” Especially in Europe, which has been hard hit by the Corona crisis compared to the Asian region, there will be more mergers and acquisitions in many sectors, says analyst James Palmer from Bank of America.
In the third quarter, income from trading in stocks and bonds, currencies and raw materials increased significantly. JP Morgan earned $ 9.4 billion in the period, four percent more than in the same period last year. Goldman Sachs even doubled profits to $ 3.5 billion – in the middle of the worst economic crisis in decades. Deutsche Bank, which presented its annual balance sheet at the beginning of February, also benefited from better business in investment banking. However, it only earns a fraction of what US banks earn.
MANY AMERICANS CANNOT PAY LOANS ANY MORE
However, if you look at the fourth quarter of 2020 alone, profits are likely to be below the previous year’s level. This is mainly due to the increased loan loss provisions. There is a risk of more defaults in the credit card business due to higher unemployment. In addition, the number of company bankruptcies is likely to increase. In the second quarter alone, the six largest US banks put aside more than $ 30 billion for bad loans. At that time, however, several institutes already signaled that this was the climax.
Experts expect Citi and Wells Fargo’s fourth-quarter results to have fallen by around 40 percent each compared to the prior-year quarter. At JP Morgan, because of the strong investment banking, they only expect a decline of five percent. It should look similar with Morgan Stanley. Only at Goldman Sachs are the analysts confident, they expect a profit increase of 43 percent.
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