What Bank Earnings Tell Us About the Economy

Wall Street is booming, or at least parts of it are. Merger mania and stock trading lifted the big U.S. banks’ third-quarter results. On Main Street, banks are still hunting for bigger loan growth, but many customers are spending more after holding out last year.

Here’s what the biggest U.S. banks are telling us about the state of the economy.

Spending

Customer spending has eclipsed pre-pandemic levels, bank executives said, a trend they see continuing into the holidays. Spending on Citigroup C 0.77% credit cards jumped 20% from a year ago to a record. Late fees are up and more people are starting to carry balances. Executives said they were back to fighting for card customers.

“That is a tremendous amount of spending that’s going on,” said Bank of America BAC 4.47% Chief Executive Brian Moynihan, “and it’s accelerating.”

Lending

A still-fragile economy and wide-open debt markets have cut into demand for bank loans during the pandemic. At Wells Fargo WFC -1.61% and Bank of America, total outstanding loans were down from a year ago but up from the second quarter.

“We all dream of faster loan growth,” Mike Santomassimo, Wells Fargo’s chief financial officer, said on a call with analysts.

One loan category, securities-based lending, is growing rapidly. Both Bank of America and Morgan Stanley MS 2.48% posted double-digit growth in loans to clients borrowing against their stock-and-bond portfolios.

Trading

Frenetic markets boosted big U.S. banks through much of the coronavirus pandemic. Now, equity trading is still up, but fixed-income trading is slowing. Morgan Stanley and Bank of America both notched gains in overall trading revenue. JPMorgan JPM 1.53% Chase & Co., Citigroup and Wells Fargo reported lower trading revenue.

Investors have been trying to figure out the new “normal” level of trading. The third quarter might be evidence that markets revenue will stay higher than previously expected at the big U.S. banks, in part because they are winning more business from international rivals, said Kush Goel, a senior analyst at investor Neuberger Berman.

Deals

A global deal bonanza continued to mint money for banks’ Wall Street operations. JPMorgan, Morgan Stanley, Bank of America and Citigroup all reported record quarters for mergers-and-acquisitions fees. Goldman Sachs’s GS 1.27% league-leading team is due to report Friday. Executives said pipelines for potential future deals remain full. That is a sign company executives are confident enough in the economy to attempt transformative deals.