Shrinking Profits & Recession Up Ahead For US Banks

On Friday the 13th, Citigroup Inc, JP Morgan Chase & Co, Bank of America, and Wells Fargo & Co will all release their quarterly financial results.

As lenders build up rainy-day savings in expectancy of an economic breakdown that is destroying investment banking, U.S. banking titans are expected to post lower fourth-quarter earnings this week.

Here’s What’s About To Go Down

While the market mood suddenly changed in 2022 from upbeat to vary, many large banks could defy the worst-case scenarios because they have curbed dangerous business practices, according to Credit Suisse analyst, Susan Roth.

Pixabay/Pexels | After a decade of de-risking, “we practice more durable earning power over the cycle,” she says

In an attempt to contain rising costs that are peaking at their highest level in decades, the Federal Reserve is quickly hiking interest rates. Consumers and companies have shrunk their spending as a result of increasing prices and increasing borrowing rates, and because banks function as economic intermediaries, their earnings decrease as activity slows.

According to statistics from Dealogic, investment banking income globally dropped to $15.3 billion during the fourth quarter, a more than fifty percent decrease from the same time last year.

Results from banks will also be heavily focused on consumer companies. While households are overall in solid financial health, many are beginning to fall behind on payments. This is because family accounts have been supported for a large portion of the crisis by a vigorous buyer’s market and government stimulus.

Analysts and investors will pay close attention to bank executives’ speeches as a key indicator of the direction of the economy. Many CEOs have expressed worry recently about the more challenging economic climate.

Edmond/Pexels | This has led companies to reduce pay or remove employment

According to early analyst projections from Refintiv, the 6 banks are also anticipated to post an average seventeen percent decline in net profit in the 4th quarter in comparison to a year earlier.

The six biggest lenders, including Morgan Stanley and Goldman Sachs, are anticipated to accumulate a collective $5.7 billion in assets on average to cover failed loans, says Refinitiv forecasts. That is more than twice as much as the $2.37 billion put aside in the previous year.

Banks “would likely integrate a more severe economic outlook” this year, according to Morgan Stanley analysts lead by Betsy Graseck. “Most U.S. economists expect either a recession or major slowdown this year,” they said.

Lenders will benefit, though, from higher rates since they will be able to charge borrowers more in interest.

Thousands of workers at Goldman Sachs will begin losing their jobs starting on Wednesday, according to two individuals familiar with the plan. A decrease in the investment banking world led to employment cuts at a number of other businesses, like Morgan Stanley and Citigroup.

According to senior vice president David Fanger of Moody’s Investors Service’s financial institution’s division, “we’re ending a time of very good credit quality.”

Andrea/Pexels | The KBW index of bank equities is up almost 4% this month after falling about 28% in the previous year

Analysts will also keep an eye on any write-downs that banks like Bank of America and Morgan Stanley make on the $13 billion loan used to finance Elon Musk’s acquisition of Twitter.

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