Loan growth stalls despite trading gains at US banks

‘There’s a great deal of optimism but there’s still uncertainty’

Wells Fargo’s shares were down 2.6% to $51.70. Photograph: Sam Hodgson/The New York Times

Wells Fargo’s shares were down 2.6% to $51.70. Photograph: Sam Hodgson/The New York Times


Big US banks revealed more evidence of a slowdown in loan growth in their earnings reports on Thursday, though executives assured there is still healthy demand from borrowers and no reason to worry about the state of the economy.

JPMorgan Chase and Citigroup posted higher first-quarter earnings that beat analysts’ expectations on large gains in trading revenue. Wells Fargo & Co, which relies more on traditional lending and less on markets-related businesses, reported a slight dip in profit due to a slowdown in mortgage banking.

The results underscored concerns expressed recently by analysts and investors that higher interest rates, combined with uncertainty about geopolitical events, could hurt economic growth – and therefore crimp lenders’ bottom lines. Top bank executives dismissed those concerns, citing strong demand from borrowers with impressive credit quality.

Across the banking industry, loans fell slightly during the first three months of the year, according to Federal Reserve data.

John Conlon, chief equity strategist at People’s United Wealth Management, who invests in bank stocks, said he is still concerned about loan growth after seeing the reports and listening to the executives’ comments.

“There’s a great deal of optimism,” Conlon said, “but there’s still uncertainty.”

Wells Fargo’s shares were down 2.6 per cent to $51.70, while Citigroup’s stock was flat at $58.41 and JPMorgan fell 0.6 per cent to $84.90. The KBW Nasdaq Bank Index fell 0.8 per cent.

The mortgage business is putting particular pressure on loan growth. The recent uptick in interest rates has crushed a wave of mortgage refinancing that kicked off in 2010, leading to big declines in mortgage banking revenue.

Other areas of lending have also slowed. For instance, some big corporate borrowers have been opting to issue bonds rather than take out traditional loans, JPMorgan chief financial officer Marianne Lake said.

And, in areas where banks are finding growth, like credit-card lending, they are doling out fat rewards and cutting interest rates to lure customers from one another.

Even so, bank executives sounded optimistic on Thursday about the outlook for lending. – Reuters