Biden Gives Banks Their Money Back

Andy Snyder|March 17, 2021

Why don’t more folks invest in banks?

They should. The average bank has seen its shares rise 25% this year.

The S&P 500, though, is up just 6%.

Banks are clearly the better play.

The reason the financial press doesn’t give the sector much airtime is it’s boring… and might even hold a few secrets the folks at the top don’t want you to know about.

Unlike Tesla (TSLA) and the crazy tweeter behind it… or Disney (DIS), the mother company behind much of the media world… banks don’t have a new and sexy product. They’re not dealing with cutting-edge technology or booming consumer trends.

Or are they?

As usual… some Manward-style facts may open a few eyes…

From Gutenberg to Powell

The way we see things, banks are the greatest beneficiaries of history’s top technological innovation… the printing press.

As you know, President Biden signed off on another major stimulus bill last week. A whopping $1.9 trillion will flow like molasses from a spilled tanker.

Rivers of wealth will flow in every direction.

Consumers (aka voters) will get covered in the sweet nectar first. We’re told some folks already have their money.

That means – through the magic of modern finance – the money is already in the hands of the big banks.

Again, thanks to modern technology, the move is quick these days. Nothing really gets printed. Somebody in D.C. just taps a 13-digit number (there are a lot of zeroes in a trillion bucks) into a computer… and, bam, money in the bank.

The folks behind the free-money free-for-most say the money will go straight toward stimulating the economy. In a roundabout way, they’re half right.

First, it will stimulate the banks.

Paying Back the Banks

Perhaps this is a good time to remind you that the nation’s banks have 439 lobbyists hiding in Washington’s swampy reeds. Some 70% of them used to work directly for the government.

The $60 million that their employers gave directly to campaigns last year was surely still on the minds of the newly elected lawmakers crafting last week’s big bill.

Congress knows how to spin a gift for one into a perceived gift to many.

And while your neighbor may be thrilled to see an extra $1,400 in his bank account… the bank is likely a whole lot happier to see it.

That’s because the vast majority of that money will stay in the banking system.

A recent survey spilled the beans…

Thirty percent of folks said they’ll use their free money to immediately pay off debt.

Another 25% said they’ll save it.

Nine percent said they’ll invest it.

Only the remaining 31% said they’ll push the cash out of the banking sector by spending it.

But even that’s not bad news for the banks. Thanks, again, to today’s modern digital money, most of that money will flow right through a bank’s digital processing system… collecting a toll along the way.

Ruffling through the industry’s books, we see just how profitable all this is.

Bottom-Line Boost

The biggest of the big numbers are on the banks’ balance sheets. That’s where, about this time last year, bank executives were writing off “bad” debt at a scary pace.

All told, the nation’s top lenders had $118 billion set aside to cover loan losses at the end of last year.

Now that several rounds of stimulus have covered the bare butts of so many debtors, banks are slashing their reserves.

Just last quarter, JPMorgan Chase (JPM) cut its bad-debt funds by $2.7 billion.

Citigroup (C) has pulled a billion out of reserves.

And, way over there across the pond, Barclays (BCS) just said the $684 million impairment charge it put in its books was far less than the $957 million charge it had penciled in months earlier.

Better yet, it said future write-offs will be “materially below” what it saw last quarter.

For banks and their shareholders… this is the equivalent of free money. It flows directly from the balance sheet to the bottom line of the income statement.

From here, the numbers will only get better.

It’s a great time to be a bank… and an even better time to own their shares.