RE: US Banks Q2 Earnings results dates10 Jul 2023 15:53
The largest US banks are this week set to report the biggest jump in loan losses since the onset of the coronavirus pandemic, as rising interest rates pile mounting pressure on borrowers across the economy. The publication of second-quarter results is set to show that banks have benefited from higher interest rates to some degree, by boosting lending and investment income. But after three years of relatively low defaults, in part fuelled by pandemic-era stimulus cash and other government assistance, lenders are also starting to see the negative effects of higher rates and inflation on borrowers. The nation’s six largest banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — are predicted to have written off a collective $5bn tied to defaulted loans in the second quarter of this year, according to the average estimates of bank analysts, as compiled by Bloomberg. The six lenders will set aside an estimated additional $7.6bn to cover loans that could go bad, analysts estimate. Both figures are nearly double what they were in the same quarter a year ago. However, they remain below the hits big banks took at the beginning of the pandemic when charge-offs and provisions peaked at $6bn and $35bn respectively. Credit cards are the biggest source of pain for a number of the banks. JPMorgan’s card loan charge-offs totalled $1.1bn in the quarter, analysts estimate, up from $600mn in the same period a year ago.
At BofA, credit card loans represent about a quarter of its charge-offs. Commercial real estate (CRE) loans are also proving a drag on banks’ performance. Property owners face reduced demand for office space as remote and hybrid work arrangements persist even though the pandemic has ended. Wells Fargo, the biggest CRE lender among the nation’s largest banks, told investors this month that it added $1bn to its loan loss provisions to cover potential losses tied to office buildings and other poor-performing properties. Investment banking is also likely to hit earnings. Revenues in the banks’ Wall Street and corporate advisory businesses are expected to fall again this quarter owing to a dearth of dealmaking activity that has dragged on for longer than many executives had anticipated. Trading revenues, which soared in recent years amid volatile financial markets, are expected to slow.
Nonetheless, bank analysts say the benefits of increased interest rates are likely to outweigh the negatives for most of the big banks. On average, analysts expect the six largest US banks to report that earnings per share rose 6 per cent year on year. The biggest banks “have been a good place for investors to hide amid liquidity concerns for regional banks coupled with concerns regarding increased regulations”, wrote KBW bank analysts Christopher McGratty and David Konrad in a note to clients. “That said, it remains a challenging environment for the universal banks.”
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