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COVID-19

Quarterly bank earnings may tell a bigger story about the U.S. economy right now

Mitchell Hartman Jul 13, 2020
Heard on: Marketplace Morning Report
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Chris Hondros/Getty Images
COVID-19

Quarterly bank earnings may tell a bigger story about the U.S. economy right now

Mitchell Hartman Jul 13, 2020
Chris Hondros/Getty Images
HTML EMBED:
COPY

The earnings season is about to begin for corporations to report their profits, losses, write-offs and all the rest for the quarter that ended in June.

This week we get a slew of earnings reports from big banks, starting with JPMorgan Chase, Citigroup and Wells Fargo on Tuesday and followed by Goldman Sachs and Bank of America later in the week.

Why should we care about the balance sheets of America’s biggest banks?

“Bank earnings tell you the most about the nation’s economy as a whole,” said Karen Petrou at Federal Financial Analytics. “Because banks trade with, lend to, take money from every segment: consumer, retail and corporate.”

Petrou said banks are putting aside more capital to cover losses on business and real estate loans, as well as credit card and car loans. Banks are also earning less from lending because interest rates are so low.

But Ken Leon at CFRA Research said the biggest banks are also able to make money from parts of the economy that are thriving: “the capital markets, equity and debt underwriting, and asset or wealth management.”

Leon said smaller regional and community banks are more exposed than big banks to the risk of consumers and businesses defaulting on their loans as the pandemic continues.

COVID-19 Economy FAQs

Are people still waiting for unemployment payments?

Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.

Are we going to see another wave of grocery store shortages?

Well, public health officials are warning that we could see a second wave of the virus before the end of the year. And this time retailers want to be prepared if there’s high demand for certain products. But they can’t rely totally on predictive modeling. People’s shopping habits have ebbed and flowed depending on the state of COVID-19 cases or lockdowns. So, grocers are going to have to trust their guts.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

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