Four of the largest U.S. governors said their profits grew by double-digits in the final quarter as a healthy U.S. economy has allowed banks to have fewer bad loans and charge-offs.
But the results of Citigroup, Bank of America, Wells Fargo and Morgan Stanley benefitted from one-time boost to their profits and low interest rates remain a significant headwind for Wall Street financial titans.
Bank of America says net income increased 58% to $7.26 billion, or 85 cents a share. That topped the estimates of Wall Street analyst who were looking for earning per share of 70 cents, according to FactSet. Then Wells Fargo posted a 59% increase in its profit from 1 year earlier.
JPMORGAN Both banks benefitted from being able to reverse some funds set aside in the pandemic in case of loan defaults at early time. These billions of dollars of potentially troubled loans have been transferred to the banks' good side of their books, which has resulted in one-time bumps to bank profits.
Our results from Wells and BofA echoed Wednesday's results from JPMorgan Chase, who saw its profits rise sharply in last quarter due to the release of more loans from its troubled loan portfolio.
Wells, the country's biggest mortgage lender, said its net interest income is stable, thought it was 5% lower than in the same period last year.
The bank released $1.7 billion from its loan-loss reserves, which was set aside for collateralized bad loans. Wells had set aside $8.4 billion to cover potentially bad loans in its second quarter after the pandemic capped when millions of Americans lost their jobs and economy effectively collapsed.
There is not an unending supply of bad loans banks can tap into to boost their profits, however, and at some point investors are going to want to see these banks post profit driven by growing their businesses or charging more for loans. Interest revenue ebbed at both Wells and BofA from a year ago, due to the Federal Reserve keeping interest rates at ultra-low levels.
The strong results of Morgan Stanley — which has a very small consumer banking business — were driven by the Bonanza of mergers and companies going public this year. Morgan Stanley's investment banking fees jumped 67% from one year earlier and advising fees were up threefold.
Financial conglomerate Citigroup — which has both a large investment banking franchise especially in credit cards but also a credit of origin banks franchise — have benefited from both trends. Its profits were up 48% from a year earlier.