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A baffling decline in business lending is reversing, a boon for banks
Banks are making more loans to businesses, a potential bright spot as
earnings roll in that could be a boon to sluggish shares of lenders.
Commercial and industrial loans grew 5.5% from a year earlier at the end of June, Federal Reserve data show. That measure of lending has picked up in recent months from less than 1% at the beginning of the year, the result of a drop-off that had weighed on bank earnings.
JPMorgan said in this morning's earnings report that its average loan
balance rose 4% versus the prior year in the second quarter. Commercial
and industrial loans were up 3%. Its stock was up 0.4% in premarket
trade. PNC also reported a rise in lending. Citigroup Inc. and Wells
Fargo & Co. results are due shortly.
The recent stretch of sluggish lending has baffled investors during an
otherwise strong period for the U.S. economy. Now, the pick-up could
similarly catch investors off-guard, and in doing so, boost bank shares.
"We believe that investor expectations for loan growth have come down
since the start of the year, so if loan growth comes in better than
expected at second-quarter earnings then stocks could react positively,"
said Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods Inc.,
in a note to clients.
The KBW Nasdaq Bank index, which measures the performance of 24 bank stocks, is down 2.8% over the last three months. The
S&P 500, by contrast, has risen more than 5%. JPMorgan shares were
down nearly 6% over that span and Citigroup dropped 5%. Goldman Sachs
Group Inc. fell 12% and Morgan Stanley is down 11%. Wells Fargo has
bucked the trend, rising 6.3%.
Some of the drop in bank shares is due to the shrinking differential
between short- and long-term interest rates, which can narrow the amount
of income banks earn from borrowing for short periods and lending for
To be sure, not all lending is perking up. Real
estate, once a burgeoning space for bank lending, has had growth rates
that continue to fall. And the Office of the Comptroller of the Currency
has warned about the easing of commercial lending standards.
But the pick up in commercial and industrial loans is shaping up to a
be a bright spot that could change the narrative around bank shares.
What are you watching in bank earnings? Tell the author your thoughts at firstname.lastname@example.org.
The face value of corporate bonds rated triple-B, the lowest rung of
investment grade, has grown by 65% in the last half decade. U.S.
government debt has grown by just 24%, according to index data tracked
by Marty Fridson of Lehmann Livian Fridson Advisors LLC.
The federal government projected stocks of soybeans for the 2018-19 crop year at a would-be record of 580 million bushels, forecasting that Chinese tariffs would cut into exports and push up stocks.
On this day in 1852, Wells Fargo opened for business
in San Francisco and Sacramento. It was founded by Henry Wells and
William G. Fargo to convert gold dust into cash for miners, as well as
to transport and safeguard letters, gold nuggets and other valuable
byproducts of the California Gold Rush.
U.S. import prices for June, out at 8:30 a.m. ET, are expected to be unchanged from the prior month.
The University of Michigan's preliminary consumer sentiment survey for July, out at 10 a.m., is expected to register at 98.0, little changed from the prior month.
The Atlanta Fed's Raphael Bostic speaks in Falls Church, Va., at 12:30 p.m.
The Baker Hughes Rig Count is due out 1 p.m.
To Michael Daly, who runs Berkshire Hills Bancorp Inc., banking is too often blasé. So Mr. Daly has adapted an unconventional rulebook meant to energize and empower his 1,900 employees.
The Fed will release its monetary-policy report to Congress. The central bank’s chairman, Jerome Powell, is set to testify
on Capitol Hill next week. Mr. Powell this week said a strong economy
should allow the Fed to keep raising interest rates gradually and that
he couldn’t yet judge how recent trade actions might alter those plans.
Big builders are reshaping the housing market. The demise of many small builders has given big ones more power, one reason that new-home sales have stayed low.
CEOs beware: Surging stock prices haven’t placated activist investors. Activists are launching campaigns at a record pace, according to a new study.
What We've Heard on the Street
"The #MeToo movement has swept through corporate America, but so far
investors have viewed the turmoil as little more than a buying
opportunity. This is a mistake because bad behavior by executives is
evidence of weak governance and a flawed corporate culture." Read more.
— Heard on the Street Reporter Elizabeth Winkler
Stocks to Watch
Mark Lennihan/Associated Press
AT&T—Down 1.5%: The Justice Department appealed a ruling that had allowed the company to acquire Time Warner Inc. in a landmark antitrust decision.
Gogo—Up 9.1%: The in-flight internet company announced several initiatives to reduce its cost structure and improve its performance.
Synchrony Financial—Unchanged: Walmart is in talks
in talks to replace Synchrony with Capital One as the issuer of its
store credit cards, The Wall Street Journal reported late in Thursday’s