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Mass Production

Posted October 18, 2021 at 9:30 am

What’s going on?

A veritable assembly line of US banking giants all posted similarly better-than-expected quarterly updates on Thursday.

What does this mean?

Let’s start with Bank of America (BoA), Citigroup, and Morgan Stanley, all of which have been making the most of the recent influx of mergers and acquisitions: revenues from their investment banking segments – which take a cut of every deal they advise on – were up 23%, 40%, and 67% respectively versus the quarter before. That helped send their profits up by a better-than-expected 58%, 48%, and 25% versus the same time last year.

Wells Fargo, meanwhile, had its personal banking business to thank for its strong showing: the division’s profit almost tripled compared to the same time last year, with shoppers getting back to using cards and racking up fees. That led the company’s profit to jump 60% from a year ago.

Why should I care?

The bigger picture: A free billion? Yes please.

Just like with JPMorgan Chase earlier in the week, BoA, Citigroup, and Wells Fargo had tucked away money in case pandemic-stricken borrowers weren’t able to pay off their debts. And just like JPMorgan, they’re at a point where they feel relaxed enough to put that cash back into the business. Not a bad way to end a quarter: BoA and Citigroup added $1.1 billion to their bottom lines, and Wells Fargo $1.7 billion.

Zooming out: Interest or death.

Ultra-low interest rates have been the thorn in banks’ sides this year, hobbling the amount banks can make from their loans businesses. So they might be pleased to see data out earlier this week showing that US consumer prices rose by a higher-than-expected 5.4% last month versus the year before. That’ll put pressure on the US Federal Reserve to raise interest rates sooner rather than later to keep inflation in check, which should give banks’ profits a nice little boost.

Originally Posted on October 14, 2021 – Mass Production

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