It's good to be a bank right now.
Four of the largest U.S. banks said their profits grew by double-digits last quarter, as a healthier U.S. economy has helped reduce the number of loans in default or that the bank won't likely recoup. The results for Citigroup, Bank of America, Wells Fargo and Morgan Stanley also show that all four benefited from various one-time boosts to their profits.
The only headwind facing the big Wall Street banks appears to be low interest rates, which have put some pressure on banks' abilities to grow their profits. Some of them, like Bank of America, are making up for it by lending significantly more than they did in the early months of the pandemic, a sign of confidence in the U.S. economy.
Bank of America said net income rose 58% to $7.26 billion, or 85 cents a share. That topped the estimates of Wall Street analysts who were looking for earning per share of 70 cents, according to FactSet. Meanwhile, Wells Fargo posted a 59% jump in profit from a year earlier.
Both banks benefited from being able to reverse some funds set aside early in the pandemic in case of loan defaults. These billions of dollars of potentially troubled loans have been moved back on to the banks' "good" side of their books, which has resulted in one-time bumps to bank profits.
Wells and BofA's results echoed Wednesday's results from JPMorgan Chase, which also saw its profits rise sharply last quarter due to the release of more loans from its troubled loan portfolio.
Wells, the country's biggest mortgage lender, said its net interest income is "stabilized," thought it was 5% lower than in the same period last year.
The bank released $1.7 billion from its loan-loss reserves. Wells had set aside $8.4 billion to cover potentially bad loans in last year's second quarter at the peak of the pandemic when millions of Americans lost their jobs and the economy effectively collapsed.
Kyle Sanders, an analyst at Edward Jones that covers Wells Fargo, said the "results were still solid and reflective of improving economic conditions."
There is not an unending supply of bad loans banks can tap into to boost their profits, however, and at some point investors are going to want to see these banks post profits driven by growing their businesses or charging more for loans. Interest revenue at both Wells and BofA fell from a year ago, due to the Federal Reserve keeping interest rates at ultra-low levels.
In contrast to its rivals, Bank of America saw its interest income go up in the quarter compared to a year earlier, partly due to a pickup in lending activity. The bank's loans grew by $21 billion from the previous three months, excluding the Paycheck Protection Program for small businesses. That's a significant boost in lending over a short period of time.
Meanwhile the strong results of Morgan Stanley — which has a very small consumer banking business — were driven by the bonanza of mergers and companies going public this year. Just in the U.S., 94 initial public offerings raised $28 billion, the highest number of IPOs for a third quarter since 2000, according to Renaissance Capital.
Morgan Stanley's investment banking fees jumped 67% from a year earlier and advising fees were up threefold.
Financial conglomerate Citigroup — which has both a large consumer banking franchise particularly in credit cards but also a large investment banking franchise — benefited from both trends. Its profits jumped 48% from a year earlier, helped by Citi also releasing bad loans from its books in the amount of $1.2 billion.
Like Morgan Stanley, Citi has gotten a boost from the rising stock market and companies' interest in going public or merging. The bank's investment banking revenues were nearly 40% higher than they were a year ago.