U.S. banks expected to report mixed Q3 results, iffy loan outlook

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(Businesshala) – The largest US lenders are expected to report moderately high third-quarter profits next week, as accounting adjustments related to the pandemic doubled their earnings earlier this year and business begins to return to normal. Is.

FILE PHOTO: Customers use an ATM at a Citibank branch in the Jackson Heights neighborhood of New York City, US, October 11, 2020. Image taken on October 11, 2020. REUTERS/Nick Zieminski/File Photo

According to I/B/E/S data from Refinitiv, analysts on average expect JPMorgan Chase & Co., the nation’s largest lender, to report slightly lower gains than the year-ago period, when it reported Wednesday. Earning season begins.

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Next Thursday, both Citigroup Inc. and Morgan Stanley are expected to increase profits by 15%, while Bank of America Corp. is expected to rise about 35%. Wells Fargo & Company, which also reported Thursday, is expected to show a massive jump of more than 100% in a quarter in which results were depressed by unusual expenses.

Goldman Group Inc. will set the range for the week on Friday, with profits expected to rise slightly.

The stock buyback will provide a lift to earnings-per-share in the quarter and the coming period.

The investment banking divisions should deliver great returns on the back of a record-breaking jump in acquisitions, while the decline in fixed income trading revenues will be partially offset by strong equity volumes.

But analysts say net interest revenue, which provides more than half of the banking industry’s revenue but has remained stagnant in recent quarters, is likely to rise in the coming months on higher interest rates and new loan demand from businesses and consumers. ready for

“That’s going to be the question. That’s the heart of the business for everybody,” said RBC Capital Markets analyst Gerard Cassidy.

Some banks may show they are earning more interest as they begin to invest more of their excess cash in securities, such as the 5-year US Treasury notes that yielded 1% as recently as the year. Three times more than in the beginning.

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Analysts will also look for signs that the decline in commercial and industrial lending has stopped. They are expected to increase once COVID-disrupted supply chains recover and allow businesses to build up inventory that needs bank financing. Many businesses and consumers paid off loans during the pandemic.

Bank of America’s expected 35% jump in profits is likely to be driven by smaller provisions for loan losses and growth in net interest income. Its results may suggest its strategy for investing its excess cash in the government and mortgage-backed securities has paid off.

Unlike earlier this year, banks would have only marginally benefited this quarter from releasing reserves for pandemic-related loan losses, which did not materialise. According to Goldman Sachs analyst Richard Ramsden, banks have already issued 60% of their combined reserves of $50 billion and are likely to issue only $5 billion more this quarter.

He expects Wells Fargo and Citigroup to benefit the most.

The results for those two banks could also be affected by how much it costs them to comply with regulators’ orders to improve their controls.

Wells Fargo’s profits a year earlier were hurt by the cost of making amends for customers’ mistakes.

M&A Fees, Trading

Acquisition advisory fees at large investment banks will increase by an average of 80%, Cassidy said, adding that he also expects a lift from equity underwriting.

On the other hand, trading revenues are expected to fall on average by around 10% as the fixed income market, which posted record trading volumes last year, has returned to more normal levels.

According to average analyst estimates, JPMorgan’s third-quarter net income is expected to decline about 3% from a year ago due to lower trading revenue and higher expenses.

Investment banking giant and money manager Morgan Stanley’s results are expected to increase on higher acquisition advisory fees, stronger equity trading revenue and higher wealth management fees.

Goldman Sachs is also expected to benefit from higher merger and acquisition fees amid a surge in the biggest global deals on record.

According to Ramsden, most banks will report that spending has increased more than revenue. To keep up with competitors continues to spend more on technology. Analysts are also apprehensive that banks will have to pay more to attract employees.

Reporting by David Henry and Elizabeth Dilts Marshall in New York; Editing by Michelle Price and Nick Ziminsky

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