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

Mitchell Hartman Oct 14, 2020
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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
Heard on:
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

What’s the outlook for vaccine supply?

Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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