The economy runs on credit and most of the credit comes from banks in the form of loans and lines of credit. In mid January, Bank of America is the second largest bank in the US which has a relationship with every 2 average citizen. For this reason, we look to how the banks are doing and is credit still in the economy?
In an article by Noor Zainab Hussain and Imani Moise of Reuters wrote about Bank of America which reported on their 4th quarter. Total loans and leases at the bank were down 6% in 2020. The demand for loans were down, customers saved more and large companies relied on capital markets for funds rather than their bank (one area was the SPACs).
Chief Financial Officer Paul Donofrio believes Bank of America should be able to grow Net Interest Income (NII) able to grow because deposits and loans are growing. the NII is expected to increase in 2021 with the biggest gains in the last half of the year.
Consumer and small business transaction volume across the 2nd largest business rose 7% but its fixed income trading desk missed estimates. Net income applicable to common shareholders fell to $5.21 billion or 59 cents a share for the quarter. Last year the company made $6.75 billion or 74 cents a share. Analysts on average had expected a profit of 55 cents a share.
Linking to dividend paying stocks, unless the economy collapses and then the government would step in to bail out the too big to fail banks, the banks are seen as the bell weather for the economies and generally because the big banks have many areas for profit are profitable companies which pay dividends. It is hard not to own the banks directly or indirectly (ie. index fund of the market) and it is hoped that both individually and as a country this will be a good year.
There are more questions than answers, till the next time – to raising questions.