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Are Banks Signaling an Economic Slowdown?

By David Hanson - Apr 16, 2013 at 8:45PM

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Other than Citigroup, most of the major U.S. banks have disappointed investors during earnings season.

It is widely accepted that the United States economy is trudging along and making a steady recovery. However, it's clear that businesses and consumers are not eager to return to a lifestyle dependent on credit and loans. U.S. Bancorp (USB 1.62%) and Wells Fargo (WFC 3.08%) both reported weak loan demand during their first-quarter earnings releases.

Since the financial crisis, banks have been able to grow net income by cutting expenses and reducing the amount of reserves they set aside for souring loans. However, these banks can only cut their way to profitability for so long before they are forced to grown top line revenue. And with tepid demand for loans, banks are wondering if the American consumer and businessman aren't recovering quite as fast as advertised.

In this video, Motley Fool banking David Hanson reminds investors about the importance of expectations and valuation. 

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Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
$53.72 (1.93%) $1.02
U.S. Bancorp Stock Quote
U.S. Bancorp
USB
$52.02 (1.62%) $0.83
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$45.48 (3.08%) $1.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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