Sharp Drop in Provisions Helped Wall Street’s Major Banks Rebound

  • Several major banks have exceeded market expectations.
  • Banking stocks have not yet been boosted, investors seem to believe that the banking crisis has not passed
  • Full recovery of China's economy, the market expects that bank performance is expected to bottom out in the second quarter.

The financial report released in the past week shows that the five largest banks in the United States (JP Morgan Chase, Citi, Goldman Sachs, Morgan Stanley, Wells Fargo) achieved a rebound in profits in the third quarter. The main contributing factors were the sharp drop in provisions, transaction and investment banking income.

JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City

Previously, affected by the new coronavirus pneumonia epidemic, the overall net profit of the US banking industry in the second quarter dropped by 70% compared with the same period last year.

Since the third quarter, several major banks have exceeded market expectations in a number of indicators-the net profit of JPMorgan Chase and Citibank is more than twice as high as the previous quarter, and the net profit of Goldman Sachs has soared by 92.7% this year, becoming the “performance champion.”

Almost all major banks have achieved double-digit declines compared to the previous month. However, banking stocks have not yet been boosted, investors seem to believe that the banking crisis has not passed, and long-term expectations of ultra-low interest rates may also hit stock prices.

Turning to China, the bank’s third quarterly report will be released one after another. After experiencing the general market rise after the National Day, the recent A-share market has continued to weaken and fluctuate, and the weighting sectors such as banks have bucked the trend and strengthened.

Bank of Chengdu, Ping An Bank, and Industrial Bank,  rose at the top, all over 10%. At the same time, with the full recovery of China’s economy, the market expects that bank performance is expected to bottom out in the second quarter.

The extremely low valuation is also the reason for attracting investors to increase their layout. Investment managers and industry analysts interviewed by CBN reporters generally stated that despite the huge differences between the Chinese and American banking industries, linkages are not non-existent. For example, global banking stocks recovered simultaneously in 2009, when the market expected a soft landing in the United States.

The Five Major Wall Street Banks Beat Expectations

The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company headquartered in New York City

The financial report of the major Wall Street banks in the second quarter of 2020 is worrying. Although the profits of trading and investment banking business rose against the trend at that time, the sharp economic contraction and soaring provisions aroused market attention.

In the second quarter, US GDP fell by 32.9% from the previous quarter, the largest decline since the US government began tracking the data in 1947.

At that time, the market expected the situation to continue to deteriorate, but the pace of economic restart seemed faster than expected.

In the third quarter, the sharp decline in the provision for bad debts and the surge in transaction revenues made the bank’s profits rebound.

All-round banks Goldman Sachs, JP Morgan Chase and Citibank’s trading income rose by 29%, 30%, and 17% respectively.

The outside world is most concerned about provisioning. The scale of bad debt provision of several major banks is not as bad as market expectations. The latest data shows that the five major banks’ bad debt provisions totaled $5.3 billion in the third quarter, which was significantly lower than market expectations.

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Joyce Davis

My history goes back to 2002 and I  worked as a reporter, interviewer, news editor, copy editor, managing editor, newsletter founder, almanac profiler, and news radio broadcaster.

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