COVID-19

Why big banks are reporting better-than-expected earnings during the pandemic downturn

Mitchell Hartman Oct 14, 2020
Heard on: Marketplace Morning Report
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Citigroup's net income of $3.2 billion, or $1.40 per share, topped analyst expectations for the third quarter. Justin Sullivan/Getty Images
COVID-19

Why big banks are reporting better-than-expected earnings during the pandemic downturn

Mitchell Hartman Oct 14, 2020
Citigroup's net income of $3.2 billion, or $1.40 per share, topped analyst expectations for the third quarter. Justin Sullivan/Getty Images
HTML EMBED:
COPY

One way we can see that this pandemic recession is different from the Great Recession is that banks are doing better.

This week we’re getting third quarter results from the major ones. JPMorgan Chase and Citigroup reported theirs Tuesday, saying they had better-than-expected financial performance, and lower-than-expected losses. On Wednesday, Goldman Sachs followed suit beating revenue expectations, although Bank of America came up short in that category and Wells Fargo missed on earnings.

This should be a tough time for banks. Low interest rates hurt their profits. And with millions unemployed and consumers strapped for cash, the credit card business is slow.

The banks’ trading business, though, has been helped by the soaring stock market, said CFRA analyst Ken Leon.

“The capital markets have done well,” Leon said.

Meanwhile, banks have put billions aside in reserves to cover losses if a lot of consumers and businesses default on their loans.

But so far, said Bankrate’s Greg McBride, “at this point we haven’t seen the type of delinquencies and defaults that we would normally see in a recession.”

McBride said that’s partly because borrowers have gotten forbearance to delay paying monthly mortgage and credit card bills.

“The hope is that these payment relief options can kind of bridge the gap until we get the virus behind us, people get back to work and they’re able to resume making the payments,” he said.

Analysts warn that without another round of government stimulus, banks might start to see more consumers and businesses default on their loans.

COVID-19 Economy FAQs

How many people are flying? Has traveled picked up?

Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.

How are Americans feeling about their finances?

Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.

Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.

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

A report out recently 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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