The data released last Tuesday about the decline in profits of American banks by nearly 70% - to reach $ 18.5 billion in the first quarter of 2020 - did not represent a disturbing news for many American economists.
Although more than half of the American banks announced their profits declining, and while 7.3% of the banks did not record profits, economic analysts considered that the news expected and even justified in light of the fluctuating circumstances of the American economy due to the effects of the economic closure following the spread of the Covid-19 epidemic.
"What we have seen is a literal translation of the mechanisms of dealing with the banking sector while facing major economic crises," said Shariq Othman, financial expert at the Washington Analytica Corporation in the US capital, on Al-Jazeera Net.
The expert, who had worked for more than twenty years in a number of major financial institutions, explained that mechanism by saying, "When the bank expects the performance of debtors companies to falter, it takes the initiative to reduce expectations and write off the funds expected to be recovered from those companies for a number of months accompanying the state of economic decline, and pays This is due to the decline in bank profits. "
This is followed by lowering profits expectations by banks, but for a temporary period linked to the continuing causes of the general economic deterioration that affects the performance of debtor companies to these banks, the situation of the banking sector varies in light of the economic crisis during the financial crisis of 2008-2009.
According to international financial expert Mohamed Al-Arian, the current crisis that the United States and the world are facing is not related to the financial sector. The current crisis is economic, unlike the situation when a number of banks and financial institutions collapsed in the previous crisis.
Al-Arian believes that the constants of the global financial system, including banks, are stable despite the economic recession in the United States.
Banking stocks are on the rise
The government reports on bank profits were not negatively reflected in the value of shares of major American banks, which witnessed a jump of $ 1.2 trillion (or 8.5%) in deposits during the first quarter compared to the previous three months.
Bank of America's stock increased 8% in the last month, increasing from $ 23 a share on May 18 to $ 25 last Wednesday.
As for Citibank shares, it jumped by 17% during the last month, increasing from $ 45 on May 18 to $ 53 on the New York Stock Exchange.
Morgan Stanley shares jumped 18% from $ 40 on May 18 to $ 48 on Wednesday. GB Morgan jumped 10% in the last month to $ 99 per share, and started on May 18 with ninety dollars per share.
Good economic news
Several factors led to the start of signs of improvement in the American economy, which is still suffering from the impact of the closure, which has paralyzed economic life due to the Covid-19 pandemic.
The Ministry of Commerce data for May indicated that the retail sales sector grew by 17.7% in a big positive jump indicating the beginning of the return of consumer confidence, as last month saw the number of applications for unemployment benefits decrease for the first time since the virus began spreading.
Despite the number of unemployed people reaching forty million Americans, financial expert Sharif Othman believes that the worst has become behind us regarding the labor market in the United States, and he expected that to be reflected on the rest of the economy in the coming weeks and months.
"An effective or vaccine vaccine to stop the spread of the Covid-19 virus will help accelerate improvement in the corners of the American economy," he said.