Here’s a Trump bump stumper: In an economy where animal spirits have been unleashed by loosening regulations, and juiced this year by President Donald Trump’s tax cuts, Bank of America continued a string of lackluster second-quarter earnings for the big banks.
On Friday, Citigroup reported disappointing trading results. Lending at Wells Fargo dropped in the quarter. Unlike those two banks, Bank of America reported earnings on Monday that beat expectations. Still, the results underscored that banks, and the economy in general, have not been boosted as much as expected by Trump’s deregulation and economic agenda — at least as indicated by the run-up in the market in the year after the election.
Business borrowing at Bank of America, which was first supposed to be fueled by animal spirits and then the tax cuts, did rise 5 percent in the quarter. Overall, though, lending didn’t rise as much as analysts were expecting. Investment banking fees dropped 7 percent. Revenue, after excluding a one-time gain from a year ago, was up 3 percent. And earnings were up 33 percent. But much of that income jump was the result of this year’s corporate tax cut. Without it, Bank of America’s second-quarter profit would have risen slightly less than 5 percent.
Of course, growth at all costs is not the plan of CEO Brian Moynihan, who has made lowering risk a priority. And investors seemed to be pleased with that plan. Shares of Bank of America have traded at a premium to its rivals based on its return on equity but have started to slip recently. If the economy continues to be strong, investors may eventually wonder whether Moynihan has been playing it too cautious.
And that’s really the bigger question. JPMorgan’s chief financial officer, Marianne Lake, said the tax cuts haven’t yet worked their way through the economy. Jamie Dimon said that tariffs have hurt only psyches, not actual business. And that may be the case. But at least for now the banks’ second-quarter earnings are making the Trump bump look as if it has gone flat.
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Stephen Gandel is a Bloomberg Opinion columnist covering banking and equity markets. He was previously a deputy digital editor for Fortune and an economics blogger at Time. He has also covered finance and the housing market.