What bank earnings, executives, can tell us about the state of our economy

By Julia Horowitz, CNN Business

CHARLOTTE – The biggest US banks move trillions of dollars around the world every day. That gives them a unique lens on how the economy is functioning, both in the United States and globally. And despite concerns about inflation, workers quitting, supply chain issues and slowing growth, bank executives just delivered a clear message to investors: We’re in pretty good shape right now.

“While there’s been some discussion around the slowdown, I would just note that US economy is now as large as it was … pre-pandemic,” Bank of America CEO Brian Moynihan told analysts Thursday.

Wall Street is cheering the latest earnings from America’s top lenders, which have released billions of dollars they’d set aside earlier in the coronavirus crisis to cover potential bad loans. The Dow finished Thursday up 1.6%, while the S&P 500 rallied 1.7%. Bank of America’s stock jumped 4.5%, while the KBW Bank Index, which tracks the sector, gained 1.3%.

So what exactly are banks seeing that makes them feel confident about the future?

Spending

Citi reported that credit card spending is up 20% compared to one year ago and is now “well above 2019 levels.” Wells Fargo also found that weekly debit card spending was up every week last quarter compared to 2019 as customers shelled out on entertainment and restaurants again.

“We continue to see that our customers have significant liquidity and consumers are continuing to spend,” Wells Fargo CEO Charles Scharf said.

There may be some changes in spending patterns as Covid-era government support dissipates, executives said. But they think the strength will persist.

Shoppers are still spending, despite concerns about supply chains, inflation

Backlogged supply chains are worrying enough that the Biden administration has announced a “90-day sprint” to fix the problem. But banks don’t see it as a game changer.

“I doubt we’ll be talking about supply chain stuff in a year. I just think that we’re focusing on it too much,” JPMorgan Chase CEO Jamie Dimon said. “It’s simply dampening a fairly good economy. It’s not reversing a fairly good economy.”

Deals

Banks aren’t just feeling good because spending is ramping up on Main Street. They’re also cashing in on Wall Street, which has seen a huge boom in dealmaking.

JPMorgan reported that its investment banking revenue shot up 45% as it raked in fees from advising companies on mergers and orchestrating stock sales. Morgan Stanley saw its investment banking revenue leap 67% compared to a year ago. Citi had its best quarter for mergers and acquisitions in a decade.

Does that mean everything is rosy? Certainly not. Citi CEO Jane Fraser said the company is watching three things “closely.” There’s inflation, including the impact of worker shortages and the energy crunch, as well as the slowdown in China and what happens with US debt ceiling negotiations.

But the big picture is that for now, lenders are making tons of money — and they expect the trend to continue.