Banks are making more loans to businesses, a potential bright spot as earnings roll in that could be a boon to sluggish shares of lenders. Commercial and industrial loans grew 5.5% from a year earlier at the end of June, Federal Reserve data show. That measure of lending has picked up in recent months from less than 1% at the beginning of the year, the result of a drop-off that had weighed on bank earnings. JPMorgan said in this morning's earnings report that its average loan balance rose 4% versus the prior year in the second quarter. Commercial and industrial loans were up 3%. Its stock was up 0.4% in premarket trade. PNC also reported a rise in lending. Citigroup Inc. and Wells Fargo & Co. results are due shortly. The recent stretch of sluggish lending has baffled investors during an otherwise strong period for the U.S. economy. Now, the pick-up could similarly catch investors off-guard, and in doing so, boost bank shares. "We believe that investor expectations for loan growth have come down since the start of the year, so if loan growth comes in better than expected at second-quarter earnings then stocks could react positively," said Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods Inc., in a note to clients. The KBW Nasdaq Bank index, which measures the performance of 24 bank stocks, is down 2.8% over the last three months. The S&P 500, by contrast, has risen more than 5%. JPMorgan shares were down nearly 6% over that span and Citigroup dropped 5%. Goldman Sachs Group Inc. fell 12% and Morgan Stanley is down 11%. Wells Fargo has bucked the trend, rising 6.3%. Some of the drop in bank shares is due to the shrinking differential between short- and long-term interest rates, which can narrow the amount of income banks earn from borrowing for short periods and lending for longer periods. To be sure, not all lending is perking up. Real estate, once a burgeoning space for bank lending, has had growth rates that continue to fall. And the Office of the Comptroller of the Currency has warned about the easing of commercial lending standards. But the pick up in commercial and industrial loans is shaping up to a be a bright spot that could change the narrative around bank shares. What are you watching in bank earnings? Tell the author your thoughts at ben.eisen@wsj.com. |