Bank of America (BAC) is flying today. That is welcomed news as this was one of our top picks for 2017, and it has only appreciated about 10%. Despite the stock spiking today, there are loan growth concerns in the sector that have been festering for some time:
The loan growth concerns comes as the economy is apparently humming along and interest rates – while rising – remain low, so what gives is the major issue?
We are unsure, but according to FDIC numbers, 12-month loan growth rate fell for the 6th straight quarter in Q3 to its weakest since the end of 2013. That is a bit of a red flag.
Digging deeper, the growth rate of business lending fell to its slowest since the start of 2011.
Combine slowing loan growth and a flattening yield curve, and one wonders about the prospects for bank earnings next year.
“The plane used to be flying at 30,000 feet, now it’s at 10,000,” says FIG Partners’ Chris Marinac. “There are many banks that are concerned about how much they can grow the loan book in 2018.”
Still Bank of America saw loan growth of 3% last quarter. That is not terrible. However we will be watching it as other players saw issues. I Q3, JPMorgan (NYSE:JPM) saw loan growth of 3% Y/Y, while Citigroup (NYSE:C) had 2%, and Wells Fargo (NYSE:WFC) posted a 1% decline. Smaller banks hardly fared better, averaging about 1.5% growth.