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Fewer loan defaults help lead banks' solid round of earnings

NEW YORK — Americans are starting to get their household finances in order.

In an encouraging round of earnings reports, major banks say fewer mortgages are going bad, credit card defaults are down and more people are paying their bills on time.

One of the nation's largest consumer lenders, Wells Fargo, said Wednesday that 29 percent fewer loans went bad in the last three months of 2010 than in the same period in 2009. And late payments on loans considered likely to default declined for the first time since 2008.

Late payments on credit cards issued by Bank of America, JP­Morgan Chase and Citigroup also improved at a record pace at the end of last year, according to an analysis by Barclays Capital.

The reports are a sign that Americans are feeling more comfortable about their finances. Personal spending powers about 70 percent of the U.S. economy, and most economists say a fiscally fit consumer is critical to a strong economic recovery.

The bank news comes after a holiday shopping season in which spending was the strongest since 2006, and auto sales grew 11 percent last year, the first gains since 2005.

Taken together, the spending indicators are the "strongest showing for consumers since the peak years of the last expansion," and signal that the economy is "near a threshold of self-sustaining growth," analysts at Citi Investment Research & Analysis said in a report this month.

Economists and policymakers are waiting for signs that the economic recovery can power itself rather than rely on outside supports, like the Fed's decision to buy hundreds of billions of dollars in government bonds to drive down interest rates.

Citigroup said loan losses fell 11 percent from the previous quarter as more of its customers kept up with payments.

Fewer customers were late on their monthly mortgage payments. The portion of Citi's home loans that were 90 days overdue fell to 2.1 percent from 2.7 percent.

Despite the trends, banks are still reluctant to loosen lending. Credit reporting agency Trans­Union estimates that 8 million Americans who had credit cards a year ago don't have them now, either by choice or because they were cut off. Banks slashed credit lines and closed millions of credit card accounts in response to regulations passed after the financial crisis.

Each of the three biggest banks — Citi, JPMorgan and Bank of America, which are also the three biggest credit card issuers in the country — reported significant declines in card balances in the fourth quarter.

Morgan Stanley earnings soar

Morgan Stanley's earnings rose 60 percent in the last three months of 2010 on strong investment banking results. The New York bank earned $600 million after paying preferred stock dividends. Revenue rose 14 percent to $7.8 billion, topping analysts' forecasts. The stronger results announced Thursday marked a turnaround for the bank, which struggled to find its footing after the financial crisis.

Fewer loan defaults help lead banks' solid round of earnings 01/20/11 [Last modified: Monday, November 7, 2011 1:15pm]
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