Bank profits are poised to surge as pandemic recedes

The nation's biggest banks are about to report windfall profits as customers increase their spending and the economy bounces back from the pandemic.

Profits for behemoths including JPMorgan Chase and Goldman Sachs are expected to jump when they report second-quarter results this week. Their Wall Street divisions have been able to cash in on a red-hot market for deals, while the banks' Main Street units benefited as customers went back to work and opened their wallets.

And some of the gains will be the result of money they already had on hand: The banks are paring down the rainy-day funds they set aside earlier in the health crisis to prepare for a dreaded wave of defaults that hasn't materialized.

"Government relief efforts and forbearance provided by banks appear to have served as an effective bridge for borrowers," Nathan Stovall, an analyst at S&P Global Market Intelligence, wrote in a report to investors. "Now, many consumers and businesses are on solid footing as Covid-19 vaccinations allow economies to reopen."

Investors will take cues from top bankers about the state of the economy. Chief executives at the largest U.S. banks have become increasingly bullish this year as a speedy vaccine rollout helped Americans emerge from the torpor of the coronavirus outbreak.

"My gut tells me this economy is recovering faster, inflation is moving quicker, and it may not be quite as transitory as we all think," James Gorman, the chief executive of Morgan Stanley, told

CNBC last month. That may mean the Federal Reserve will need to raise interest rates earlier than markets are expecting, Mr. Gorman said.

The shifting pace of the rebound has caused some turbulence: Bank stocks that surged as the reopening gained speed have fallen 7 percent in the last month, and investors in the bond market are worried that growth is slowing from its previously breakneck pace. Executives will probably be quizzed about inflation and what would happen to financial markets should the Fed curtail its enormous bond-buying program sooner than once expected.

The uncertainty that's depressing bank stocks will probably dissipate, said Susan Roth Katzke, an analyst at Credit Suisse. She forecast a rally of about 20 percent in some of their shares in the next six to 12 months.