With a soft landing for the economy in sight, big banks are doing well

Several of the country’s, and the world’s, largest banks reported quarterly earnings in the past few days. Goldman Sachs on Monday said its profit was up 150% from a year ago. JPMorgan Chase posted net income of $18.1 billion in the second quarter, the highest quarterly profit for a bank in American history, according to Bloomberg. Buried in those reports is a picture of the U.S. economy, and it’s looking mostly good. 

Remember how, for most of last year, a recession was always lurking right around the corner? That recession never showed up.

“Now it seems like the consensus is almost entirely that we are going to have a soft landing and the economy is going to do well,” said Suryansh Sharma, an equity analyst at Morningstar.

That’s a big reason banks are doing so well. Once investors and companies accepted that a recession is probably not coming soon, markets racked up gains — the S&P 500 stock index, for instance, is up 18% year to date. 

Companies are comfortable with the direction of the markets, said Art Hogan, chief market strategist at B. Riley Wealth. “The markets feel firm enough for them to go ahead and make bold decisions.”

Bold decisions like do a merger or make an acquisition, which they will pay an investment bank to execute for them. 

“Goldman reported this morning a 21% rise in investment banking and on the high side we had a 60% gain in investment banking for Citigroup,” said Stephen Biggar, director of financial institutions research for Argus Research.  

Higher economic confidence has made corporate bonds look less risky, which has brought their interest rates down, Biggar said. So, companies have seized the opportunity and asked banks — and paid banks — to issue more of those bonds. But there have been a few soft spots for banks. 

“What we’re currently seeing on the loan side is that the commercial side is very weak,” Sharma said.

Businesses are still a little hesitant to take out direct loans from banks. And loan losses — on credit cards, for example — have risen. The amount of bad debt Wells Fargo never expects to collect is up 71% from last year.