(Alliance News) - Major US banks kick off the fourth quarter reporting season later this week, with the likes of JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp and Wells Fargo & Co expected to report record annual earnings.
Last year, major banks saw their bottom lines boosted by the release of credit provisions, contrasting with hefty impairments booked in 2020 following the emergence of Covid-19. In 2022, however, banks will not benefit from easier comparatives or impairment reversals, meaning earnings could fall, or growth may be muted.
"The fourth-quarter reporting season kicks off in earnest on Friday when the megabanks JP Morgan Chase, Citigroup and Wells Fargo all release their earnings and these figures could set the tone for both the FTSE 100 banks (who report in February) and stock markets more widely," AJ Bell analyst Russ Mould commented.
"The Big Four US banks are expected to report record earnings for 2021 but analysts then expect a dip in 2022, as a good portion of last year's forecast uplift came from writing back bad loan provisions taken in 2020 rather than growth in loan books or higher net interest margins."
Mould noted BofA, Citi, JPMorgan and Wells Fargo are expected to report an aggregate net profit of USD117 billion in 2021, nearly doubled from USD60 billion in 2020. The previous record was 2019's chunky USD100 billion.
JPMorgan, Citi and Wells Fargo all report earnings on Friday, before BofA on January 18.
AJ Bell's Mould noted the bumper earnings for US banking bellwethers is a sharp contrast to the UK's Big Five: Standard Chartered, HSBC Holdings PLC, Barclays PLC, NatWest Group PLC and Lloyds Banking Group PLC.
The Big Five are expected to notch a combined pretax profit of GBP36.4 billion, beating 2007's record of GBP35.8 billion, Mould said.
The analyst added: "Whatever the reasons, both the Big Four in the US and the Big Five are expected to show a dip in profits in 2022, as this year is not expected to benefit from the write-back of bad loan provisions taken in 2020. Not as many loans went sour as expected in 2021, helped by vaccinations, an end to lockdowns and an economic upturn.
"The Big Four have already written back USD19 billion in loan loss provisions in the first three quarters of 2021, against the USD60 billion in charges they took in 2020. The pace slowed in the third quarter to USD3.7 billion of write-backs, from USD6.2 billion in the second and USD9.7 billion in the first, and it will be interesting to see if it did so again in the fourth."
Also in focus will be payouts. While the US banking firms are not expected to release dividends of roughly USD30 billion between them, like in 2007 and 2019, they will pay out a hefty USD24 billion for 2021.
By Eric Cunha; ericcunha@alliancenews.com
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Barclays (BARC)
HSBC Holdings (HSBA)
Standard Chartered (STAN)
Natwest (NWG)
