Bank Executives Say There Could be Some Bubbles in Asset Markets

U.S. banks are benefiting from a surge in equity markets and continued resilience in consumer spending, while being wary of some possible bubbles in the markets, Reuters reported Tuesday (Oct. 14).

Goldman Sachs, JPMorgan Chase, Wells Fargo and Citigroup all reported “solid” investment banking performance in the most recent quarter, the report said.

Bank executives also said consumer finances remain healthy, with consumer delinquencies lower than expected and consumer spending remaining consistent, according to the report.

However, there were some concerns that the excitement seen in the markets could lead to a correction in asset prices, the report said.

In remarks made Tuesday, Citigroup CEO Jane Fraser said that there are “pockets of valuation frothiness in the market,” JPMorgan Chase CEO Jamie Dimon said that many assets look like they are “entering bubble territory,” and Goldman Sachs CEO David Solomon said that there is “a fair amount of investor exuberance,” per the report.

Solomon added, according to the report, that risk management is “imperative” because while the forward outlook generally looks good, the market operates in cycles.

It was reported Monday (Oct. 13) that as several banks report their earnings this week, analysts expect them to show strong growth but will also be looking for signs of headwinds from delinquencies in student and auto loans.

The sector’s growth has been fueled by a surge in mergers and acquisitions, a pickup in capital markets activity and a favorable regulatory environment that has reduced the burdens of fees and examinations.

At the same time, there are signs of headwinds that could impact future earnings, including rising delinquencies, a slight increase in corporate bankruptcies, and a small slowdown in the growth of consumer spending.

It was reported Tuesday that Dimon issued a warning regarding auto market bankruptcies, saying they are an indication that lending standards have become too relaxed. Dimon was speaking in reference to the bankruptcies of car parts company First Brands and subprime lender Tricolor Holdings.

At Citi, Fraser said Tuesday that each of the bank’s five core businesses (Services, Markets, Banking, Wealth and U.S. Personal Banking) posted record quarterly revenues and that Citi’s multi-year effort to rebuild itself as a leaner, technology-driven institution is beginning to deliver results.