U.S. mega-banks are all dressed up with few places to grow. Citigroup, JPMorgan and Wells Fargo kicked off the year with results that exceeded expectations. Some of the investor exuberance over possible tax cuts and regulatory rollbacks has abated, however. Loan growth is slowing and credit costs may soon rise. Valuations have further to fall.
First-quarter earnings on Thursday helped justify some of the momentum. JPMorgan generated annualized return on equity of 11 percent and Wells Fargo's clocked in at 11.5 percent. That's at the top end of what they have been delivering for a couple years. There's little evidence yet of any Donald Trump or Janet Yellen effect.
Both lenders, along with Citigroup which also reported profit that beat consensus estimates, unveiled yet another decline in how much money it projects losing because of borrowers not being able to pay. These credit costs are now exceptionally low and will, as JPMorgan boss Jamie Dimon puts it, soon "normalize."