Where's the Boom in Bank Lending?: DealBook Briefing

Good Friday. Here’s what we’re watching:

• Lending in the first quarter is set to disappoint.

• JPMorgan reported record revenue and profit.

• Why is President Trump considering rejoining the TPP?

• What the U.S.P.S. inquiry means for Amazon.

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So, about that lending boom…

Tax cuts, bank deregulation and a recovering global economy were expected to unleash a surge of bank lending that could stoke an even stronger expansion. But lending in the first quarter is set to disappoint, at least going by the results of the four big banks that reported Friday.

JPMorgan Chase, Citigroup, Wells Fargo and PNC Financial had a combined $2.78 trillion of loans at the end of the first quarter, up 3 percent from $2.7 billion at the end of the same period a year ago. How does that growth rate stack up? It’s more or less in line with the 2.9 percent increase in loans the banks notched up last year, but it is well below the 4.6 percent and the 4.4 percent rates that they together achieved in 2016 and 2015.

Each quarter, much attention is paid to the performance of the big banks’ Wall Street operations. But activities like trading are only remotely related to the real economy. As a result, to assess whether banks are assisting the wider economy, it makes more sense to look at trends in their lending, which directly finances consumer spending, home purchases and corporate investments.

Investors may have been disappointed at the first-quarter lending numbers. Despite the four banks’ strong profits, their stock prices on Friday slid.

The unexceptional first-quarter loan growth may, of course, give way to bigger increases later this year as confidence builds. And beneath the aggregated loan totals are some numbers that suggest things could improve. Citigroup’s loans grew 7.1 percent in the first quarter, compared with the year-ago period. The increase was driven by a 13 percent surge in corporate lending, much of which took place in Europe and Asia. And the first-quarter total for the four banks was held back by a 1.1 percent decline at Wells Fargo, which is operating under a strict regulatory edict.

Still, the obstacles to a bigger expansion are clear. Interest rates are going up, making the cost of borrowing higher. Why, for instance, would large companies take on more debt, at a higher cost, when there is a good chance that the current trade tensions could dampen global growth? And individuals may be reluctant to take on mortgage debt when wage growth is tepid, and higher house prices have left them paying out an increasing portion of their income to service the mortgages. This may explain the dip in mortgage lending in the first quarter. In the period, the four banks made $65 billion of new mortgages, down 9.6 percent from the $72.1 billion they made in the same period a year ago.

— Peter Eavis

Has Trump changed his mind about the TPP?

He once denounced the trade pact as “a rape of our country.” But his decision yesterday to reconsider joining — which surprised his own advisers — could hearten U.S. businesses and Republican lawmakers who supported it as one of the best ways to box in China.

Senator John Thune, Republican of South Dakota, told Politico, “If you want to send a message to China, the best way to do that is to start doing business with their competitors.”

Free-trade backers may point to this reversal, as well as attempts to revise Nafta, as a change of heart by a protectionist president. Then again:

And Japan’s chief cabinet secretary cautioned this morning that it’d be hard to rewrite a “well-balanced pact” that already met the needs of 11 signatories.

“We’ve got a deal” already, said Steven Ciobo, Australia’s trade minister, who added, “I can’t see that all being thrown open to appease the United States.”

The president’s decisions on economic matters are now the purview of Larry Kudlow, who’s casting himself as a “happy warrior” even as he described the TPP decision as coming “out of the dark, navy blue.”

Meanwhile, China is not-so-subtly threatening to scale back its purchases of U.S. debt, though that would be a risky maneuver.

Bank stocks fall

Shares of the biggest banks are faring worse than the broader stock indexes.

The KBW Bank Index, made up of 24 of the largest banks, is off nearly 1 percent while the S.&P. 500 is essentially flat in early trading.

JPMorgan was down 1.1 percent, Citigroup was off 1.5 percent, and Wells Fargo fell 2.3 percent.

The declines come despite JPMorgan announcing record profits and Citi reporting its highest earnings since 2015.

The slide in bank stocks is “a sign that many of the upbeat earnings numbers have already been priced into share prices,” as MoneyBeat’s Ben Eisen points out.

Are the Federal Reserve’s shackles holding Wells Fargo back?

Following widespread missteps at the bank, the Fed in February told Wells Fargo that, until sufficient improvements were made, it could not increase the amount of assets it holds. Some analysts said the cap need not stop the bank from making more loans, because it could sell securities and then use that money to do more lending. But loans did not grow in the first quarter. At the end of March, Wells Fargo had $947 billion of loans, down from $958 billion a year earlier, and also down from $957 billion at the end of 2017.

But the decline is not large, and it’s not clear how much the Fed’s cap is to blame. Wells Fargo’s loans had not been growing strongly in recent quarters.

And here are Wells Fargo’s numbers:

• Wells Fargo’s profit rose to $5.94 billion.

• Earnings per share came in at $1.12 a share. Analysts had expected earnings of $1.06 a share, according to Thomson Reuters.

• Revenues fell to $21.9 billion from $22.3 billion in the first-quarter 2017.

• Costs rose 3% to $14.24 billion from $13.79 billion a year ago.

— Peter Eavis

Volatility and taxes lift JPMorgan’s results

JPMorgan reported record revenue and profit for the first three months of this year.

Here are the numbers:

• The bank reported earnings of $8.71 billion, up 35 percent from a year ago.

• That comes to $2.37 a share. Analysts had expected earnings of $2.28 a share, according to Thomson Reuters.

• Revenue increased to $28.5 billion, up 10 percent.

• Return on equity, a measure of profitability, hit 15 percent, up from 11 percent a year ago.

• Trading revenues rose to $6.57 billion, up 13 percent from the first quarter of 2017.

• Equities trading revenue rose 26 percent to $2.02 billion.

• Bond-trading revenue rose 8 percent to $4.55 billion.

• Fees from investment banking fell 10 percent to $1.7 billion.

• Costs climbed to $16.1 billion, 5 percent higher than a year ago.

Citi also reports higher revenue and profits.

• Earnings rose to $4.6 billion, up from $4.1 billion a year ago.

• Earnings per share came in at $1.68. Analysts expected $1.61 a share, according to Thomson Reuters.

• Revenue increased to $18.9 billion for the quarter, up 3% from a year earlier.

• Return on equity, a measure of profitability, hit 9.7 percent, up 7.4 percent a year ago. While that’s the highest level in years, it is just shy of the all-important 10 percent level.

• Revenue from fixed-income trading fell 7 percent to $3.4 billion.

• Equity trading revenue jumped 38% to $1.1 billion.

• Fees from investment banking fell 10 percent to $1.1 billion.

The hidden messages in today’s bank earnings

One way to gauge the crosswinds blowing through financial markets and the global economy is by examining the results of JPMorgan Chase, Citigroup and Wells Fargo, which report their first-quarter earnings today.

Here’s what to consider, according to Peter Eavis:

• Are trade tensions reducing demand for credit?

• How concerned should we be with the volatility in the stock and bond markets?

• Are regular Americans borrowing more, potentially boosting the U.S. economy?

• How much will deregulation help the banks?

In related economic news: Larry Fink of BlackRock told our Landon Thomas Jr. that while his optimism has dimmed a bit, he believed that “economically, the world is in good shape.”

Trump’s U.S.P.S. inquiry turns up heat on Amazon

The president’s late-night ordering of a review of the Postal Service’s finances has a clear target: the online retail giant and its chief, Jeff Bezos. That’s despite postal experts and White House advisers telling him that Amazon helps the service’s bottom line.

It’s unclear when a commission to conduct the review will be assembled — if it ever is — but it marks an escalation by President Trump against companies that he doesn’t like. Our question: What else could the White House do to companies out of his favor?

The political flyaround

• In his new memoir, “A Higher Loyalty,” James Comey criticized President Trump as “untethered to truth” and compared his leadership to the Mafia. He added that his firing from the F.B.I. reportedly made John Kelly want to quit. Michiko Kakutani calls the memoir “absorbing.”

• As director of the Office of Management and Budget, Mick Mulvaney won some power over how the Republican tax cuts will be rolled out. As acting director of the Consumer Financial Protection Bureau, he sparred with Senator Elizabeth Warren over financial regulations. A federal appeals court has questioned whether he can do both jobs.

• White House allies worry that Michael Cohen regularly taped conversations — and that the F.B.I. has them. Shortly before the raids on Mr. Cohen’s office and hotel room, Mr. Trump’s legal team had convened to discuss how to let Robert Mueller interview the president. And here’s a look at what could happen if Mr. Trump fires Rod Rosenstein.

• Mr. Trump plans to pardon Scooter Libby. (NYT)

• How Scott Pruitt’s security chief clashed with critics over spending at the E.P.A. (NYT)

• Meet two billionaire big spenders on the 2018 elections: Tom Steyer of California on the left, Richard Uihlein of Illinois on the right. (NYT)

• A constitutional amendment requiring balanced budgets has failed in the House. (NYT)

How serious was Bob Iger about a presidential run?

Very, judging by what he says in a profile in Vogue:

“I, maybe a bit naïvely, believed that there was a need for someone in high elected office to be more open-minded and willing to not only govern from the middle but to try to shame everyone else into going to the middle.”

Alas, his company agreed to buy most of 21st Century Fox for $52.4 billion, and that was that.

What Mark Zuckerberg didn’t say

Despite two days of congressional testimony, the Facebook chief didn’t address some issues, including the tech giant’s role in violence worldwide. Shira Ovide of Gadfly thinks that his evasiveness about how the company works shows that it’s embarrassed. (Oh, and the European Parliament wants Mr. Zuckerberg to testify, too.)

U.S. lawmakers seem to agree regulation is needed, but doubt that it’s coming. Senator John Cornyn, Republican of Texas, told the NYT, “I think we need to be careful.” Representative Frank Pallone Jr., Democrat of New York, said, “I don’t believe the Republicans will end up doing anything.”

The latest Facebook scandal has finally put a spotlight on data privacy, experts say. One, Doc Searls, told the NYT, “They’re saying, ‘O.K., it’s barn-raising time.’ ” (Facebook still isn’t expecting a hit to sales.)

Elsewhere in tech: The National Transportation Safety Board revoked Tesla’s status as an official party to its investigation of the fatal crash of a Model X after the company publicized information from the inquiry. Uber will expand the scope of a proposed data breach settlement with the F.T.C. Asia’s venture capital community is growing to match the U.S. one. A cybersecurity firm backed by SoftBank said that its onetime H.R. chief was a fraud.

What Elliott may want from Micro Focus

Amid operational troubles and a steep price drop, perhaps it was only a matter of time before the software maker Micro Focus drew an activist investor. Now a logical candidate, Elliott Management, has taken a stake. Michael hears it could push the company to consider going private, or selling SUSE Linux, a popular operating system brand that it acquired as part of its takeover of Attachmate.

One intriguing possibility: Elliott pushing to be involved in a sale of some or all of the business through its private equity team, Evergreen Coast Capital.

The deals flyaround

• Xiaomi of China is reportedly considering bidding for GoPro. (The Information)

• G.E. is said to be planning to slim down through a series of sell-offs and joint ventures. (WSJ)

• Anbang and China’s financial regulator are auditioning advisers to help dismantle the embattled insurer’s portfolio of assets, like the Waldorf Astoria. (Bloomberg)

• Broadcom plans to buy back to $12 billion worth of stock, though that’s no Qualcomm. (WSJ)

• Warren Buffett plans to oppose USG’s board nominees as the company fights a takeover bid by Knauf. (Reuters)

• Norwegian Air Shuttle’s C.E.O. isn’t interested in selling to the owner of British Airways, IAG. But a deal could make sense for both sides.

• A Colorado civic group wants to buy The Denver Post from Alden Global Capital. (NYT)

• SpaceX is expected to achieve a valuation of about $24 billion in a forthcoming round of fund-raising, behind only Uber and Airbnb among U.S. start-ups. (Recode)

Revolving door

• Volkswagen formally named Herbert Diess as its next C.E.O. (NYT)

• The London Stock Exchange has hired David Schwimmer, a former Goldman Sachs investment banker and not the other one, as its C.E.O. (Bloomberg)

• Perella Weinberg Partners reportedly plans to open an office in Paris, its first in continental Europe. (Bloomberg)

• Lewis D’Vorkin, who briefly edited the L.A. Times, was fired as Tribune Interactive’s chief content officer in a round of layoffs by Tronc. (LAT)

• Hometeam’s C.E.O., Josh Bruno, and president, Matt Marcotte, have stepped down as the senior-care start-up reorganizes itself. (Recode)

The speed read

• Victims of Bernie Madoff’s Ponzi scheme will receive another $504 million from seized assets. (NYT)

• Carl Ferrer, the C.E.O. of sex advertising site Backpage.com, pleaded guilty to conspiracy and money laundering, while the company pleaded guilty to human trafficking. (NYT)

• Britain has become the largest book exporter in the world; Brexit could change that. (NYT)

• New Zealand will stop issuing permits for offshore oil and gas exploration, to combat climate change. (NYT)

• International banks are reportedly hurrying to shed ties to Oleg Deripaska’s EN+ Group, after the U.S. listed it in new sanctions against Russia. (WSJ)

• Steve Schwarzman has dropped his stipulation that his high school be renamed after him as a condition of a $25 million gift. (WSJ)

• The known unknowns about A.I. in banking. (FT)

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