Corona is beating banks’ profits

Dhe corona pandemic and its economic consequences are showing first deep traces in the business figures of the major American banks. JPMorgan, the largest bank in the United States, suffered a sharp drop in profits in the second quarter. After earning just under $ 10 billion between April and June last year, $ 4.7 billion (4.1 billion euros) was less than half the bottom line this year, the bank said on Tuesday.

At Citigroup, the quarterly profit even dropped 73 percent to $ 1.3 billion. San Francisco-based major bank Wells Fargo even reported the first quarterly loss since the 2008 financial crisis with a loss of $ 2.4 billion.

Above all, high provisions for possible loan defaults, but also lower income due to the lower key interest rates in America spanked the results. The background to this is the rapid rise in unemployment due to the Corona crisis and the increasing number of company insolvencies. JPMorgan alone increased its bad debts by $ 8.9 billion to $ 10.5 billion. Citigroup made $ 7.9 billion in four times more money for credit risk than in the same period last year.

Deutsche Bank on course plus

“Despite some positive economic data and decisive government measures, there is still great uncertainty about the economic outlook,” warned JPMorgan’s CEO Jamie Dimon, who has been used to success for many years.

However, both Dimons Bank and Citigroup were able to cushion the problems in the credit business with bubbling income in parts of investment banking. According to Dimon, JP Morgan has generated more sales than ever in the past three months. In the fixed-income business, the bank doubled its revenue compared to the same period last year. But it also posted high growth in equity trading.

The fact that the bond market is apparently still going well is good news for Deutsche Bank, which has traditionally been one of the most important players in the international business with fixed-income securities and currencies. The CEO Christian Sewing had only hinted a few days ago that the trading business remains lively in his house as well. On Tuesday, Deutsche Bank shares were one of the biggest winners in the otherwise weak Dax, with a price increase of up to 1.8 percent. Sewing presents the figures for the second quarter on July 29th.

Thousands of repayments

Deutsche Bank had already benefited from good trading results in the first quarter. It remains to be seen how strongly the corona charges will put pressure on the credit books of German banks. So far, Deutsche Bank has made small reserves compared to its American competitors. She points out that a large part of her loans are usually well-secured real estate financing and only a small part has been extended to sectors that are currently particularly badly affected, such as tourism and oil companies. In addition, the hundreds of billions in aid measures by the federal government have so far prevented bankruptcy and excessive unemployment.

The high number of credit deferrals shows that many German bank customers are also facing payment difficulties due to the pandemic. The federal government quickly enacted a Corona Mitigation Law in March that allowed borrowers to temporarily stop servicing their loans.

Such deferrals have been applied for by the Deutsche Bank and Postbank alone, 70,000 customers, as deputy CEO Karl von Rohr was talking to F.A.Z. said. The savings banks currently have to waive repayments and interest payments on 189,000 loans, Commerzbank at 33,000 and Targobank, which specializes in consumer loans, at 47,000.

Advantage of American banks

The warnings of a new banking crisis in Europe are therefore increasing. The Standard & Poor’s rating agency for Western Europe has just forecast total credit losses of $ 228 billion in 2020 and 2021, compared to $ 54 billion last year. The supervisory authorities have also been warning about a significant increase in bad loans for several months.

The business figures with which the three major American banks opened the round of quarterly reporting on Tuesday clearly show how helpful a diversified business model is in these times. While JP Morgan and Citigroup were able to cushion their high loan provisions with the good results in the trading business, Wells Fargo lacks this compensation.

Here, earnings plummeted more than 17 percent to $ 17.8 billion. The bank is still battered by a scandal about fictitious accounts and has now had to announce a reduction in its dividend. The share price plummeted 8 percent shortly after the numbers were released.

The other two major banks were able to exceed analysts’ previously low expectations despite the slump in earnings. JP Morgan and Citi’s share prices also rose in view of the encouraging earnings increases. The fact that JP Morgan boss Dimon assured that the bank will continue to pay dividends if the economy does not deteriorate even more is likely to have contributed to this. This is an advantage for American banks. The European houses may no longer distribute anything to their shareholders under pressure from the banking regulator.

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