For five years, U.S. consumers have been undergoing a massive debt reduction: Paying off credit cards, paring back spending and building up funds for a rainy day. Investors, though, have been looking to see whether Wall Street banks are lending for a positive sign that the economic recovery is picking up steam.
Last week, investors got a sign—though not quite as positive as they may have hoped. For banks like JPMorgan Chase and Bank of America—which each reported "core" loan growth in the single-digit percent range—the uptick in borrowing came from high net-worth clients in their brokerages, not from the consumer banks.
"Households have focused on improving their financial position, even with historically low interest rates," said Marty Mosby, director of bank equity strategies at Vinings Sparks Asset Management.
Loan balances serve as a barometer of consumer sentiment: It takes confidence in one's job security and personal finances to borrow for a big purchase or a new venture. Data from the third quarter showed wealthier clients tended to have more of that confidence.
At JPMorgan, consumer loan balances were $391 billion in the third quarter—barely budging from the same quarter a year ago, while average loans in the bank's asset management unit rose 15.4 percent.
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Bank of America reported consumer loans down 3.5 percent from the same period a year ago. While some of the decrease is attributed to legacy loans the bank is allowing to run off, Wells Fargo analyst Matt Burnell noted BofA's "challenged" growth with "weakness across commercial loans and most consumer categories."
Meanwhile, Bank of America's Merrill Lynch Wealth Management reported loan growth up 8 percent.
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The results of other banks are roughly in line with this trend, though it's not as apples-to-apples:Citigroup's data only reflect consumer borrowing, while Morgan Stanley's only reflect that of non-retail brokerage clients. Wells Fargo's brokerage is still in its early stages of growth.
Federal Reserve data available on a weekly basis have shown a strong pickup in consumer loans— 6-plus percent growth over 2013— since June. The data, however, don't reflect the disparity between borrowing bases. At a conference in Boston Friday, Fed Chair Janet Yellen said, "The extent of and continuing increase in inequality in the United States greatly concern me."
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Still, even as the banking industry awaits a broad-based recovery for consumers, firms saw more trading activity, higher earnings on deal advisory and a swelling base of fee-earning client assets. With loan growth for everyday consumers, they'd be firing on all cylinders.
