Ben Eisen reports in The Wall Street Journal that banks are preparing to loosen up money they’ve been holding for lending into a major economic boom. He writes:
The accelerating economic recovery is likely to boost bank profits.
Encouraged by government efforts to pump money into the economy and signs that Americans are spending more, the largest financial institutions are expected to release some of the rainy-day money they set aside after the coronavirus pandemic hit. That will offer a jolt to their income in the first three months of the year.
JPMorgan Chase JPM -1.65% & Co., Wells Fargo WFC -2.28% & Co. and Goldman Sachs Group Inc. GS -1.61% will disclose financial results on Wednesday. Bank of America Corp. BAC -1.80% and Citigroup Inc. C -1.95% report Thursday and Morgan Stanley MS -1.04% follows on Friday. Analysts forecast that all of them will post first-quarter profits that are far above year-earlier levels.
Already, investor expectations are high. The KBW Nasdaq Bank Index, which tracks shares of the largest lenders, is up 27% so far this year, nearly triple the gains of the S&P 500.
Banks are seen as proxies for the health of the U.S. economy. Their shares were in the doldrums around this time last year, when global commerce ground to a halt. But over the past few months, the stocks have bounced back. The index returned to a record in March, topping its prior high from 2007.
“The U.S. economy will likely boom,” JPMorgan Chase Chief Executive Jamie Dimon wrote in his annual letter last week. “This boom could easily run into 2023 because all the spending could extend well into 2023.”
Banks had set aside tens of billions of dollars in reserves to prepare for a wave of loan losses. Those reserves were booked against profits, depressing income for the first half of last year.
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