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Analysts and investors have been carefully watching loan growth,
a core driver of bank income, after extraordinary government
stimulus during the COVID-19 pandemic dampened companies' and
consumers' appetite for bank borrowing.
As the economy bounced back from the pandemic, demand for loans
began to pick up in the first quarter driven by consumer
spending and companies bulking up inventories. That trend
continued during the second quarter, despite aggressive U.S.
Federal Reserve interest rate rises sparking recession fears.
JPMorgan Chase & Co and Wells Fargo & Co, two of the biggest
U.S. lenders, said that their loan books grew in the second
quarter by 7% and 8.4%, respectively, compared to last year,
with few signs of deteriorating credit quality.
During second-quarter earnings calls on Thursday, executives at
JPMorgan - the country's largest lender - said they expect loans
to grow by the mid- to high-single digits this year.
That growth and Fed rate rises were good news for banks,
boosting net interest income, the difference between the
interest earned on loans and paid out on deposits.
Citigroup, for example, said gross loan yield had risen for the
prior five consecutive quarters to reach 5.81% in the second
quarter.
"Results in 2Q22 so far reinforce our positive view," wrote
analysts at Wells Fargo, citing strong credit quality, growth in
loans and a 10% quarter-on-quarter rise in net interest income.
They said commercial loans are showing the best growth in 14
years.
Wells Fargo, JPMorgan and Citigroup all said corporate clients
borrowed more in the second quarter, often to cover increased
costs created by soaring inflation. JPMorgan, for example, saw
strong growth in corporate and industrial loans, which grew 6%
on higher use of revolving facilities and new accounts opened,
while commercial real estate loans grew 3%.
Citigroup said loans in its Institutional Clients Group grew 3%,
with executives noting that some of that was driven by a surge
in market volatility sparked by the conflict in Ukraine.
"We are seeing an increase of lending as our clients have been
less inclined to obtain financing through the debt markets given
the recent swings," Citi CEO Jane Fraser told analysts.
Kenneth Leon, research director, industry and equities at CFRA
Research, said he expected commercial loan growth would be flat
in the second half, while consumer loans would likely decline
given the risk of recession, even if only a shallow one.
While a slump in mortgage lending due to rising rates was a drag
on consumer lending portfolios, credit card loans were way up,
with JPMorgan and Wells Fargo both reporting a 17% jump.
Average loans for Citi's personal banking and wealth management
division, which includes cards, rose roughly 4% from a year ago.
Bank executives said credit quality remained very high, but
warned inflation will likely dampen consumer spending.
"I don't think what we've seen in the second quarter will
continue to happen at the same pace," Wells Fargo Chief
Financial Officer Mike Santomassimo told analysts.
Morgan Stanley said its loans grew by $7 billion year-on-year,
driven primarily by wealth management clients taking out
mortgages or loans backed by their investments.
But even among those well-heeled clients, borrowing is expected
to wane as rates rise, making mortgages more expensive, and as
slumping markets reduce the value of equity investments, said
the bank's CFO Sharon Yeshaya.
"We really have not seen yet any major cracks as it relates to
the health of the consumer," said Leon. "Credit quality is still
very good but that will probably shakeout sometime next year."
(Reporting by Elizabeth Dilts Marshall; editing by Michelle
Price and Nick Zieminski)
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