In general, growth is good at least stable growth is good for the banks. As long as you are personally ok in your work life, one of the methods to see how the economy is doing is looking at the big banks. The big banks besides offering a multiple of services for you, also offer multiple services for corporations and governments. If the parts of the bank are doing well, then the economy must be doing ok. The banks like reasonably stable growth which allows people to take out loans and pay them back, the higher the payback ratio, the lower loan losses have to be and the higher the profit for the bank.
In mid October, the banks reported on their 3rd quarter and all did very well, producing greater profits for shareholders.
In an article by Anirban Sen and Elizabeth Dilts Marshall of Reuters, the biggest US bank is JPMorgan Chase and because the economy was growing in a stable fashion and loan losses provisions were lowered, the bank’s profit was 24% higher than the same period last year. The bank’s average loans, deposits were higher (money flowing into the economy), credit card spending was higher (an indication of consumer expectations).
The highlight of the bank was its Corporate and Investment Bank division where advisory fees almost tripled due to strong performance in Mergers and Acquisition (M&A) and equity underwriting, thanks to new issues on the stock market.
Overall, JPMorgan’s profit rose to $11.7 billion or $3.74 a share compare to $9.4 billion or $2.94 a share a year ago. Analysts were expecting $3.00 a share profit. The difference was the reserve was lowered by $2.1 billion.
Revenue rose to $30.4 billion just above the $29.8 billion analysts were expecting.
Linking to dividend paying stocks, the big banks are a staple in dividend stock portfolios because they make profits on a consistent basis. In JPMorgan’s case a bad quarter would have been $9 billion, a good quarter $10 billion and and a great quarter $11.7 billion profit. It is hard not to own the shares either directly or indirectly through index funds. As long as the economy grows to allow for people and companies to pay back loans, the banks are a long term hold.
There are more questions than answers, till the next time – to raising questions.