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What We Learned From Banks’ Opening Earnings Salvo

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In the first wave of Q4 earnings reports, J.P. Morgan Chase, Citigroup and Wells Fargo showed the pandemic’s impact on critical lending and spending, and of course debt repayment, may not have been as bad as had been feared in the dark days of Spring 2020.

But the questions loom: What comes next? What’s in the cards? (Literally.) And what’s on the horizon for commercial and individual customers?

The first thing to look at is the concept of reserves. There’s something to be said for the ability to “release” reserves — as far as earnings are concerned, the bottom line gets padded (via accounting constructs). Thus JPM got 72 cents added to its results as it released nearly $3 billion in reserves. Citi released $1.5 billion, and managed to earn $2.08, where analysts had expected $1.34. Wells Fargo released $787 million, and its own bottom line at 64 cents was 4 cents better that the Street (J.P. Morgan CEO Jamie Dimon referred to released reserves, and the attendant EPS boost as “ink on paper” during the earnings call).

The moves came after these banks and others had taken reserves in the tens of billions of dollars earlier in the year to cover what they thought would be souring loans across the board, for consumers losses, yes, but commercial ones too. It might be premature to say the outlook is sunny, but perhaps the worst might be behind us (the caveat, of course, is what happens going forward with the pandemic — and where, we contend, the revenue slides, measured year over year in percentage points may not be all that quick to disappear).

To get a sense of the caution that is warranted, consider the fact that J.P. Morgan released reserves, yes, but kept its reserves tied to the card business intact, at $17.8 billion, even as card loans gained slightly, and the net charge-off rate declined.

It’s clear that banks’ customers view deposits as a safe haven. Citi’s deposits were up 20 percent. Drilling into Citi’s own supplemental materials, we see that its average deposits in its retail banking segment were up 18 percent to stand at more than $282 billion. Wells, for its part, said in its filings that average deposits were up 4 percent in the period, year over year.

Spending continues to gravitate toward debit, while credit spending remains pressured. J.P. Morgan management said on its call that debit spend gained 12 percent; Wells said that debit spending was up a bit more than 10.6 percent. Debit spend at Wells, said CEO Charlie Scharf on the earnings call, was up double-digit percentages. Credit spend across these firms was flat to down, depending on where you looked.

Where some of the stimulus dollars are going: Scharf said on the call that, “roughly half of the (stimulus) dollars … were deposited into accounts being spent.”

Citi’s CEO Michael Corbat told analysts on the conference call, “What’s important to point out is the stimulus thus far has resulted in high payment rates, a consistent ability to pay on the part of the consumer. And that’s been good and showed up not only in our payment rates, but also in the lower level of delinquencies that we’ve seen and obviously the lower level of losses that we’ve seen.”

As such, at least so far it seems that fears of the need for long-term payment deferment arrangements also seemed unwarranted. J.P. Morgan’s management said on the conference call that, in further estimates of customer resilience, 90 percent of accounts across its portfolio remain current.

The Great Digital Pivot

As to what remains on the other side of it all — the great digital shift is here, of course. J.P. Morgan noted that the mobile users were up 10 percent year on year; digital users overall were up 5 percent as measured against 2019. Citi said that within its own digital activities, mobile users were up 95 percent; the total digital customers stood at 20 million in North America. Wells said through its report that it had 32 million active digital customers (online and mobile) in Q4, with the inclusion of 26 million mobile active customers, up a respective 6 and 7 percent.

That shift comes, at least partially, at the expense of brick-and-mortar. JPMorgan’s branch footprint was down 1 percent in the period; Citi’s U.S. branch count was flat. Wells closed 329 branches through the year and ended the most recent quarter at 5,032.

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