ADVFN Logo

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Hot Features

Registration Strip Icon for discussion Register to chat with like-minded investors on our interactive forums.

JPM JP Morgan Chase and Co

199.52
0.00 (0.00%)
Pre Market
Last Updated: 08:40:53
Delayed by 15 minutes
Share Name Share Symbol Market Type
JP Morgan Chase and Co NYSE:JPM NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 199.52 481 08:40:53

America Went on a Borrowing Binge, But Banks Were Left Out

10/02/2021 10:59am

Dow Jones News


JP Morgan Chase (NYSE:JPM)
Historical Stock Chart


From Mar 2019 to Mar 2024

Click Here for more JP Morgan Chase Charts.
By Ben Eisen 

Last year was a banner one for debt, but it didn't look that way for America's big banks.

Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade, according to an analysis of Federal Reserve data by Jason Goldberg, a banking analyst at Barclays. The 0.5% drop was just the second decline in 28 years.

Bank of America Corp.'s loans and leases dropped by 5.7%. Citigroup Inc.'s loans dropped by 3.4% and Wells Fargo & Co.'s shrank by 7.8%. Among the biggest four banks, only JPMorgan Chase & Co. had more loans at the end of the year than the start.

Lenders are flush with cash that they want to put to use, and executives say they are hopeful loan growth will pick up in 2021. Brisk lending typically suggests there is enough momentum in the economy to give companies and consumers the confidence to borrow. But the current weakness suggests questions remain about the vigor of the economic recovery.

For banks, this weighed on profit. Net interest income, the spread between what banks charge borrowers and pay depositors, fell 5% across the industry last year--a consequence of shrinking loan portfolios and near-zero interest rates. It was the biggest drop in more than 80 years of record-keeping, according to research by Mike Mayo, a banking analyst at Wells Fargo.

At the start of last year, it didn't look like this would happen. When the pandemic first hit, big companies rushed to draw down credit lines from their banks, fearful they wouldn't be able to raise money from investors in the bond market. The loans on bank balance sheets spiked.

But government intervention came in the form of looser monetary policy and gargantuan fiscal stimulus. The Federal Reserve enacted a series of measures that calmed markets and allowed companies to start issuing their own debt again. Congress passed a bill to dole out money to small businesses and households.

Markets thawed, and companies including Mondelez International Inc., VF Corp. and Whirlpool Corp. rushed to issue bonds to repay the credit lines they drew down. The record-breaking bond boom moved debt from bank balance sheets into the hands of investors. The initial growth in banks' commercial and industrial loans almost entirely reversed as the year wore on, Mr. Goldberg said.

Other companies paid back credit lines because business held up better than expected and they didn't want to pay the interest costs, said Tom Hunt, a director at the Association for Financial Professionals, an industry group for corporate treasurers. "This was more of a liquidity crisis than anything," he said.

Some banks have large businesses underwriting debt, and growth in those units served as an offset when companies tapped the bond market. Bank of America, Citigroup and JPMorgan all posted higher revenue from debt underwriting.

But a deep recession meant that companies weren't turning to banks as much for loans to build new warehouses, finance new product development or otherwise spur growth. What's more, some banks tightened lending standards as they battened down the hatches during the pandemic.

Loan books would have shrunk more if not for government support for small businesses. Banks doled out hundreds of billions of dollars in loans through the Paycheck Protection Program. Those loans have stacked up on bank balance sheets, but are slowly being whittled away as the government forgives them.

Banks are also footing fewer bills for individual customers. Many, like Kelly LaBanco, a makeup artist living in Chicago, have tried to buy less on credit cards so they don't risk overspending. Work trailed off for her during the pandemic, and she has used unemployment benefits for most everyday expenses.

Ms. LaBanco estimates that she charges about half as much on her airline-branded credit card as she did before the pandemic. When she thinks about splurging on something using the card, she said, "There's that little devil on your shoulder like, 'Girl, you're not working.'"

Americans also used stimulus checks and expanded unemployment benefits to pay down their credit-card balances. Credit-card debt declined sharply through the first nine months of last year, according to data from the Federal Reserve Bank of New York.

Low rates propelled a bonanza in the mortgage market, leading to a record year for the home-lending industry. But for banks, the benefit was limited. For one, most mortgages get packaged into debt securities and sold off to investors, meaning the initial lender isn't typically the party that collects interest on the debt.

What's more, nonbank mortgage firms grew disproportionately over the past year, picking up market share as banks tightened lending. In the first nine months of 2020, nonbanks made two thirds of mortgages, according to industry research group Inside Mortgage Finance.

Bank executives say they expect loan growth to pick back up this year, but the timing depends on the pandemic and the government's response to it. Executives at Citigroup, for example, indicated that a key factor will be when another round of stimulus is passed in Congress, as is currently being discussed.

"If we see that take hold sooner, we could see higher levels of volume and loan growth and obviously that would be beneficial," Citigroup Chief Financial Officer Mark Mason said on a call with analysts last month.

Write to Ben Eisen at ben.eisen@wsj.com

 

(END) Dow Jones Newswires

February 10, 2021 05:44 ET (10:44 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

1 Year JP Morgan Chase Chart

1 Year JP Morgan Chase Chart

1 Month JP Morgan Chase Chart

1 Month JP Morgan Chase Chart

Your Recent History

Delayed Upgrade Clock