What to Watch in Bank Earnings, From Interest Rates to Omicron’s Impact

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JPMorgan, Wells Fargo and Citigroup are due for reports on Friday, as the big banks begin to disclose fourth-quarter results

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According to FactSet, banks in the S&P 500 are expected to report total profits of about $31.2 billion for the fourth quarter. This would be a decline of 2.4% compared to a year ago.

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Like other businesses, banks are being forced to adapt to the Omicron economy. Consumer spending was flagged off at the end of the year with the emergence of the Covid-19 version. Inflation hit a four-decade high in December.

According to analysts at JPMorgan Chase, spending with Chase credit and debit cards weakened 21% from 2019 levels in November to 11% higher in the last week of December. He said in a research note that the decline in airfare spending was particularly sharp.

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Increased pressure: Banks built up reserves in 2020 when they were expecting large pandemic credit losses. Due to which their profits were badly affected. When the economy recovered, banks began to release those reserves, which boosted their bottom lines. Those reserve releases are expected to be much smaller going forward.

Meanwhile, historically high trading revenues, an important source of profits during pandemic-induced market volatility, are returning to more normal levels. Wall Street analysts expect Goldman Sachs Group Inc.

To report about $4.2 billion in business revenue for the quarter, according to FactSet. This will still be about 20% higher than the fourth quarter of 2019, but about 45% lower than the first quarter of 2021.

Yet Wall Street is also hoping for bright spots. Higher borrowing gains could result from an increase in US government bond yields. KBW analysts expect adjusted net interest income to grow 8% in the fourth quarter from a year ago.

This growth may continue into 2022, which is appealing to investors. The KBW Nasdaq Bank Index has risen more than 10% since December 15, when the Federal Reserve indicated it would raise interest rates several times into 2022. JPMorgan Chief Executive Jamie Dimon predicted more than four increases this year in a CNBC interview on Monday. The Fed indicated last week that it could raise interest rates as soon as March.

Credit growth has become more stable after a lull during most of the pandemic. The total debt of US banks reached $10.76 trillion at the end of December. That’s up 2.8% from late September and not far from the highs in 2020 immediately after the pandemic began.

A white-hot market for deals, a major source of banking profits, shows little sign of slowing down. Global investment-banking revenue topped $31 billion in the fourth quarter, according to Dealogic. This is slightly lower than the previous quarters of 2021, but well above pre-pandemic levels.

Write Charlie Grant at [email protected]

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