Bank of America and Citigroup’s revenue fell due to stagnant loans

Bank of America and Citigroup reported a decline in revenue on Wednesday as low interest rates and dwindling loan books continue to put pressure on America’s largest banks, but some executives said the industry may be at an inflection point.

Bank of America chief executive Brian Moynihan (Brian Moynihan) cites economic improvement and said: “This quarter we have seen almost all corporate loan levels start from the stable period and begin to make progress.”

“The company needs to build inventory and hire workers to meet growing customer demand,” he said. “This virtuous circle of hiring workers and meeting customer spending will help promote economic development.”

According to FactSet’s data, Bank of America’s second-quarter revenue fell 4% year-on-year to US$21.5 billion, which was lower than analysts’ expectations of US$21.8 billion.

Total loans fell by 12% due to a 30% drop in loans to its corporate global banking sector.

Although the credit card spending of Bank of America customers surged by 46% in the second quarter, and nearly 1 million new credit card accounts were added in a year, the business’s loan balance fell by 15%.

After the downturn of the Covid-19 pandemic dropped sharply, the strong rebound in consumer spending has not yet translated into higher card balances. More and more people pay their balance before the bank earns interest.

Citigroup said that due to the decline in sales, revenue from its North American branded card business fell by 12%.

Overall, Citigroup reported a 12% drop in total revenue and a 3% drop in loans at the end of the period from a year ago.

Wells Fargo also announced earnings on Wednesday, and consumer and business loans saw double-digit declines. Its chief executive, Charles Scharf, said that “mild loan demand” remains a disadvantage for the bank.

Among the bank executives reported this week, Bank of America’s Moynihan took the most optimistic stance on loan growth prospects, saying that commercial loans “can’t go down”, but Citigroup also hinted that consumer spending this year will translate into loan growth. .

JP Morgan Chase, the largest US bank, was not so optimistic when it announced its earnings on Tuesday. Its chief financial officer Jeremy Barnum (Jeremy Barnum) said, “bottoming is a very dangerous thing.”

Ever since the Federal Reserve cut interest rates to near zero and fiscal and monetary stimulus plans reduced interest in new loans, banks have been working hard to increase loan revenue.

For most of last year, the increase in transaction fees helped mask the decline in the bank’s core loan portfolio, but these declines have subsided as the market calmed down from the frenzied trading during the volatility spike at the peak of the pandemic. Bank of America’s sales and transaction revenue fell 19% year-on-year in the second quarter, while Citi’s market revenue fell by a third.

Investment banking helped offset the decline in transactions between Wall Street giants JPMorgan Chase and Goldman Sachs, which reported double-digit growth on Tuesday. However, the business of providing M&A advisory and corporate financing for Bank of America and Citigroup is relatively small. According to data from Refinitiv, the two companies accounted for a relatively low share of global investment banking expenses in the first half of this year.

Bank of America’s investment banking expenses were flat in the second quarter, while Citibank’s expenses rose by only 1%.

The U.S. economy is recovering faster than expected, allowing them to free up billions of dollars to set aside funds for loan losses caused by a pandemic that never happened.

Citigroup reported a profit of US$6.2 billion, or US$2.85 per share, in the second quarter, compared with US$1.1 billion, or 38 cents per share, in the same period last year, releasing US$2.4 billion in reserves. Analysts surveyed by FactSet expect earnings per share of $2.02.

Bank of America released US$2.2 billion in reserves in the second quarter, reporting earnings of US$9.2 billion, or earnings per share of US$1.03, compared with earnings of US$3.5 billion or 37 cents per share in the same period last year. Analysts surveyed by FactSet expect earnings per share of 77 cents.

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