The flood of liquidity that accompanied the pandemic recession isn’t likely to subside anytime soon. Banks will have to employ a mix of securities buying, hedging and other balance-sheet-management tricks to prop up margins longer than initially imagined.
Originations in the third quarter are on pace to double what the Detroit lender reported a quarter earlier, adding more high-yielding loans to the balance sheet.
The $18.8 billion in net income was 70% less than a year earlier as the uncertain economic picture and new accounting rules drove a sharp rise in provisions for future losses.
In what was a challenging quarter for the industry, the company reported strong loan growth and a wider margin. Continued momentum will depend on government stimulus, the reopening of New York City and borrowers' ability to make payments after their deferral periods end.
With multiple business sectors reeling from the pandemic, banks are facing tighter net interest margins, provisioning more for losses and seeing their balance sheets expand, the agency said in a report.
A record amount of funds have flowed into banks since the coronavirus hit, but a low rate environment and tepid loan demand are complicating efforts to put that money to work.
Past is not prologue, and a successful strategy for becoming a top-performing bank in 2020 is very different than it might have been just six months ago.
With rates so low — after steep emergency Federal Reserve cuts in response to the pandemic’s fallout — banks will struggle to generate bread-and-butter interest income and asset-sensitive lenders will face substantial net interest margin contraction this year and next, analysts say.
Bankers will be pressed on upcoming earnings calls to forecast how the coronavirus pandemic — and the government's response — will shape credit quality, margins and fee income.
The Fed’s decision to cut its benchmark interest rate amid growing coronavirus concerns is bound to have an impact on banks, but just how broad and how deep remains to be seen.