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Big Pandemic Profits Could Be Over For Big Banks

The honeymoon may be over when it comes to big banks and the pandemic economy.

As The Wall Street Journal reported Friday (Jan. 14), fourth-quarter profits fell 14% at JPMorgan Chase & Co. and declined by 26% at Citigroup, marking the end of a series of steep gains throughout last year.

The report notes that banks have seen unrivaled growth since COVID struck, helped along by a boom in deal making, a volatile market and a housing sector that made mortgages more profitable than ever before.

“With all respect to the fact that people are suffering in Covid and all that, the fact is, in spite of Omicron, in spite of supply chains, 2021 was one of the best growth years ever,” JPMorgan CEO Jamie Dimon said Friday. “And 2022 looks like it will [be] actually pretty good.”

Meanwhile, the apocalyptic scenarios the banks worried about the pandemic began never came about, freeing up more profits. Bad loans are still very low, while consumer and commercial customers have, on average, a healthy level of cash on hand.

But some of the factors that led to these profits are starting to diminish. JPMorgan says it doesn’t expect to reach its longer-term profitability goals this year and perhaps not even next.

“The headwinds likely exceed the tailwinds,” JPMorgan Chief Financial Officer Jeremy Barnum told analysts. “We are in for a couple of years of sub-target returns.”

The bank logged a $10.4 billion profit, while Citigroup recorded $3.2 billion, both exceeding analysts’ expectations, the Journal said.

Read more: Analysts Expect Big Banks to Post Record Profits for ’21

As PYMNTS reported earlier this month, analysts say it could take years to repeat the types of earnings banks enjoyed in 2021.

Matt O’Connor, who heads large-cap bank research at Deutsche Bank, said it might be necessary “have to go all the way out to 2024” before earnings perform the way they did last year. But there’s still reason to expect interest rates could rise, with optimism that 2022 might also be a good year.

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