Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, indicated that commercial banking is transitioning from a "no hire/no fire" stance towards modest expansion. In his quarterly review of third-quarter bank earnings, he highlighted a noticeable increase in business borrowing without a decline in credit quality, describing the overall outlook as "constructive" for growth.
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Consumer spending remains strong among major credit card issuers, experiencing year-over-year growth in the high single to low double digits. JPMorgan reported a 10% spending growth, Bank of America saw 8%, and Citigroup recorded 11%. Charge-offs and delinquencies, however, moved in the opposite direction.
LeBas noted that consumer net charge-off rates averaged about 0.9% in the third quarter and declined sequentially at all three major card banks. He stated that it is "hard to find a consumer slowdown in those numbers, though inflation clouds the story a bit."
Regional banks are also showing positive trends, with PNC, U.S. Bancorp, and M&T each experiencing roughly 10% year-over-year growth in commercial loans. The adjusted total net charge-off rates for regional banks, including U.S. Bancorp, PNC, Truist, Regions, and M&T, averaged around 0.36% in Q3, a figure LeBas described as "benign" given the current interest rates.
Despite increased lending activity, indicators of credit quality remain positive. While there are some negative trends, such as criticized and nonperforming loans, these are not signaling major issues, with Bank of America, U.S. Bancorp, and Regions all reporting a decrease in criticized exposure despite growing loan volumes.
Overall, the takeaway from the third-quarter earnings is that consumer spending is robust, businesses are inclined to borrow, and both groups show minimal signs of difficulty in repayment. LeBas cautioned, however, that this positive trend may be "less helpful for anyone waiting for demand destruction to solve the Fed's inflation problem."