Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Bank investors can breathe a sigh of relief.

Three of the biggest banks in the U.S. reported first-quarter results on Thursday, with JPMorgan Chase & Co. and Citigroup Inc. posting respectable numbers and Wells Fargo & Co. paling slightly by comparison. While none pulled an alarm bell, they were clear there is still some uncertainty about public policy despite confidence in the economy.

Fixed-income trading revenue shined (as it has in recent quarters) once again, and consumer lending continued to show small signs of weakness. But perhaps more notable is the fact that at least one key executive allayed fears about the potential re-introduction of the Glass-Steagall Act, which would require banks to separate their consumer and investment banking arms.

JPMorgan, the nation's biggest lender by market value and likely the most vulnerable to such re-regulation, is simply shrugging off its feasibility. My take on comments from Chief Financial Officer Marianne Lake is that she isn't losing sleep over it, despite calls in Washington for its return. "The diversification of our business has been and was a source of strength not just for us but also for financial markets during the crisis," she argued on the bank's conference call with analysts, adding that such a move doesn't feel consistent with other objectives of the Trump administration, including its pro-growth agenda and calls for a "level playing field." 

By the Numbers
Three of the U.S.'s biggest lenders reported first-quarter results on Thursday and beat consensus analyst expectations for the most part
Source: Company reports, Bloomberg

Even if "re-regulation," deregulation or tax reform, or all three, don't materialize, banks are living up to the belief that they'll be able to thrive in a healthier economic environment. (This even goes for Wells Fargo, despite its struggles to attract new retail customers in the wake of its fake-accounts scandal that has led to higher-than-forecast expenses.)  

Slow Grind
The average profitability of U.S. banks is climbing toward pre-crisis levels but is expected to remain below the 20-year average of less than 17% in the near term
Source: Bloomberg Intelligence

And although JPMorgan's net charge-offs, which reflect loans on which a lender doesn't expect to collect, climbed to 0.79 percent, in part because of a write-down in student loans and its growing credit-card business, it's still at an extremely benign level when compared with historical averages. The same goes for Wells Fargo at 0.34 percent and Citi at 1.58 percent.

No Sweat, Yet
First-quarter results reiterate that credit quality remains relatively high, though this is expected to turn in a cycle
Source: Bernstein
*Bernstein estimates reflecet a mix of commercial & industrial, commercial real estate, mortgage, card and other loans

All three lenders also reported a slight uptick in their core Tier 1 equity ratios, giving them each a stronger case to seek approval from bank regulators to return additional capital to shareholders, a move that would buoy their respective share prices. 

Buybacks and Dividends Ahead?
The three banks that reported Thursday have ample excess capital. If they're permitted to give more of this to shareholders, returns will improve
Source: Company reports
*Includes buffer above regulatory minimum

Their results not only bode well for Bank of America Corp., Morgan Stanley and Goldman Sachs Group Inc., which report next week, but provide comfort that bank stocks aren't overheated. With future interest rate increases already priced in and policy changes still very much unknown, investors should take a minute before sending them on another tear. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Also, the fact that Wells Fargo's CEO Tim Sloan admitted that he sometimes spends 100 percent of his day dealing with the fallout of the sales scandal is ... not ideal.

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Gillian Tan in New York at

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Daniel Niemi at