© Reuters. FILE PHOTO: A combined file photo shows Wells Fargo, Citigbank, Morgan Stanley, JPMorgan Chase, Bank of America, JPMorgan and Goldman Sachs from the Reuters file. REUTERS/File photo
By Saeed Azhar and Mehnaz Yasmin
NEW YORK (Reuters) – Most Wall Street banks are likely to report lower quarterly earnings and face a bleak outlook for the rest of the year as last month’s regional banking crisis and a slumping economy are expected to slowdown hurt profitability.
Earnings per share at the six largest US banks are expected to be down around 10% from a year earlier, analyst estimates at Refinitiv I/B/E/S show. Banks begin reporting results on April 14.
Access to cheap deposits, which increased for the biggest banks as savers fled smaller lenders after the collapse of Silicon Valley Bank last month, likely boosted the biggest banks’ net interest income, analysts said.
JPMorgan Chase & Co (NYSE:), the largest US bank, is likely to come out ahead of the rest as its net interest margin (interest earned on loans versus interest paid to depositors) was higher than the from some of its peers, analysts said.
The bank is expected to report a 30% rise in earnings per share, driven by a nearly 36% rise in net interest income, according to Refinitiv I/B/E/S estimates and Reuters calculations. .
However, tighter financial conditions and a slowing economy mean banks face the prospect of tepid loan growth and credit deterioration, forcing them to increase provisions against potential losses.
“We expect a challenging earnings season for banks,” David Chiaverini, a banking analyst at Wedbush Securities, said in a note.
He said bank managers will become more defensive, implementing liquidity measures that could lead to downward revisions to net interest income.
Earnings are also likely to be hit by another dry spell for trading and capital markets activity, with some analysts also predicting a slowdown in trading revenue. These trends would hit investment banking powerhouses like Goldman Sachs Group Inc (NYSE:) and Morgan Stanley (NYSE:).
Trading income, a silver lining in prior quarters, could be impacted by lower equity trading in the first quarter compared to a year ago, partially offset by strength in fixed income, currencies and commodities (FICC) the analysts said.
Goldman’s earnings per share could fall by a fifth, hurt by investment banking woes, after a larger-than-expected 69% drop in fourth-quarter profit, hurt by wealth management income and losses consumer commercials.
The six banks declined to comment on upcoming results and forecasts.
The banking index is down 14% so far this year.
(Chart: Falling Deposits – https://www.reuters.com/graphics/BANKS-DEPOSITS/CHART/gdpzqnybovw/chart.png)
As interest rates rise, banks make more money from interest payments from borrowers than from depositors.
Net interest income at the six largest US banks is expected to rise about 30% from a year earlier, according to analyst estimates at Refinitiv I/B/E/S.
However, the earnings from interest payments can be offset by bad loans.
“There will still be incremental increases in provisions this year,” particularly for commercial real estate and potentially consumer credit cards, said Ana Arsov, head of the North America banking team at ratings agency Moody’s (NYSE:) Investors Service.
She expects a slowdown in lending in areas like commercial and industrial, auto and mortgage.
Investors will examine balance sheets to determine which lenders attracted or lost deposits during the March banking crisis, while assessing its impact on lending and the US economy.
The results will give an idea of the ease with which lenders can finance operations and whether they have enough protection to handle crises.
“Fears about bank capital and liquidity levels are likely to persist for at least the next several months due to recent tensions,” Gennadiy Goldberg, US interest rate strategist at TD Securities, said in an interview.
Refinitiv I/B/E/S earnings per share estimates
Q1 Q1 2022 Estimate
JPMorgan $3.42 $2.63
Goldman Sachs $8.6 $10.76
fargo wells (New York Stock Exchange:) $1.13 $0.88
Citigroup (New York Stock Exchange:) $1.70 $2.02
Bank of America (NYSE:) $0.84 $0.8
Morgan Stanley $1.75 $2.02
