Big banks rake in record profits as stimulus props up consumers

New York: The US government piled trillions of dollars of emergency funds into Americans' accounts during the pandemic. That's boosting the bottom lines of the banks that store their cash.

Lending giants reported blockbuster profits this week, in part because stimulus payments have helped consumers bounce back from the Covid-19 crisis and prevented more severe economic damage. The emergency funds helped boost deposits at the four biggest U.S. banks to $6.9 trillion last quarter, up 15% from a year earlier.

The resilience of consumers, thanks in part to those stimulus checks, also prompted the four lenders to reduce the amount they'd set aside for soured loans by $12.7 billion. Those reductions, known as reserve releases, came after the banks spent most of 2020 provisioning billions of dollars for credit losses with the expectation that Americans would be so economically devastated by the pandemic that they'd stop paying their credit-card bills and other loans in droves. That calamity never came to pass.

"This is the healthiest we have seen the consumer emerge from a crisis in recent history, driven in large part by the U.S. government stimulus package," Citigroup's new chief executive officer, Jane Fraser, told analysts on an earnings conference call.

At JPMorgan Chase & Co., deposits jumped 24% in the first quarter, and the bank posted a $5.2 billion reserve release. That reduction made its way to the bottom line at the largest U.S. lender, which reported its best first quarter on record, though CEO Jamie Dimon noted that he doesn't consider the metric to be "core or recurring profits."

At rival Bank of America Corp., deposits were up 19%, and the lender released $2.7 billion from its stockpile for souring loans - and Chief Financial Officer Paul Donofrio said reserves will probably decline further in coming quarters as the economy gets back on track and uncertainty eases.

Rescue funds have been critical to help some consumers get back on their feet after the pandemic put millions of people out of work and shuttered businesses across the country.

Banks serve as financial middlemen, benefiting from economic growth and profiting when customers spend money and companies do more business. But they can also earn money in downturns. During the pandemic, the lenders acted as intermediaries that stored customers' stimulus payments in bank accounts and avoided potential losses when clients used those funds to pay down loans.

Other pandemic-era trends helped banks' bottom lines as well, including a volatile stock market that buoyed their trading desks, and a surge in initial public offerings by blank-check companies and tech firms, which gave investment bankers a boost. And challenges emerged in the quarterly results as well, with loan balances declining, something that could hurt future earnings from banks' bread-and-butter business of lending.

Still, CEOs were largely optimistic about the outlook as Americans get vaccinated and the U.S. emerges from the Covid-19 crisis. Consumers have spent just half the money from the latest round of stimulus, according to Wells Fargo & Co. CEO Charlie Scharf. At Bank of America, the figure is only about 30%, CEO Brian Moynihan said. That means they'll still have money to deploy as businesses come back online and leisure and business travel resumes.

"That bodes well for our economic reopening," Moynihan said. "The good news is the consumers are healthy."