US banking giants to report higher profits even as dealmaking drags
Send a link to a friend
[July 11, 2023] By
Nupur Anand, Niket Nishant and Saeed Azhar
NEW YORK (Reuters) - Wall Street banks are expected to report higher
profits for the second quarter as rising interest payments offset a
downturn in dealmaking.
For universal banks such as JPMorgan and Wells Fargo that serve retail
consumers as well as corporations, earnings per share (EPS) are expected
to jump more than 40%, according to analyst estimates from Refinitiv
I/B/E/S as of late Monday. Bank of America's EPS will likely climb more
than 7%. Citigroup is expected to lag its peers with a 43% drop in EPS.
Results for investment banking behemoths will also weaken, with EPS
forecast to drop almost 59% at Goldman Sachs. Morgan Stanley's EPS is
anticipated to drop 9%, although revenue from wealth management will
likely cushion the blow from lackluster dealmaking.
Universal lenders have been buoyed by American consumers who continue to
spend money and remain in good financial health, said David Konrad, an
analyst at Keefe, Bruyette & Woods. That offsets the doldrums in
investment banking, where revenues have been depressed by rising
interest rates and economic uncertainty.
"Goldman will have a dismal quarter again for investment banking and
trading has been lackluster due to lower volatility," said Stephen
Biggar, an analyst at Argus Research. The bank will probably take a
writedown on its consumer business, he added.
![](http://archives.lincolndailynews.com/2023/Jul/11/images/ads/current/napa_sda_HEROES_2023.png)
Sluggish deal markets will continue to be a sore spot for Wall Street
after global investment banking activity plunged to $15.7 billion in the
second quarter, the lowest since 2012, according to Dealogic data.
Banking executives have also lowered expectations for the second quarter
after mergers, acquisitions and debt offerings plunged in recent months.
But some have pointed to a nascent revival in initial public offerings
as a sign of a potential recovery in equity capital markets for the
second half.
When interest rates rise, lenders typically earn more from charging
customers higher borrowing rates. But demand for loans is slowing, and
banks are paying up to keep consumers' money parked in accounts while
customers shop around for higher-yielding options.
Deposits fell $141 billion at large lenders in the second quarter, KBW
analysts said in a note. That outflow reversed an influx of deposits
into big banks in the first quarter as customers sought safety after
several regional banks collapsed.
![](http://archives.lincolndailynews.com/2023/Jul/11/images/ads/current/ldn_sda_NILA_012823.png)
[to top of second column] |
![](../images/071123PIX/busine22.jpg)
Pedestrians are reflected in the window
as customers conduct transactions at a Bank of America ATM in
Washington July 19, 2011. REUTERS/Kevin Lamarque/File Photo
![](http://archives.lincolndailynews.com/2017/Jul/22/images/ads/current/rohlfs_lda_072017.png)
Looking ahead, banks may pull back on lending in preparation for new
rules that could require them to hold more capital. U.S. banking
giants sailed through the Fed's annual health check in June, showing
they had enough capital to weather a severe economic downturn. The
lenders raised their dividends after the results were announced.
The U.S. added fewer jobs than anticipated in June, but wage growth
and employment are still strong. The hot job market will likely keep
the Federal Reserve on track to raise interest rates in July,
according to traders' expectations.
Analysts and investors will also focus on executives' commentary on
loan growth and credit quality, said Betsy Graseck, an analyst at
Morgan Stanley.
"It's a double-edged sword," she said. "The good news is credit is
good, but the bad news is that this could mean rates need to go even
higher," she said.
While consumer finances have held up so far, default risks on
personal loans and credit cards are predicted to rise, Kenneth Leon,
research director at CFRA Research, wrote in a note.
"We see higher credit risk ahead for lower to middle class families
with higher credit card debt that cannot keep pace with higher
living costs," Leon added.
Office loans also pose concerns for some U.S. lenders, as property
values decline and more borrowers default, analysts said. Investors
will focus on any provisions banks set aside for souring loans on
commercial real estate (CRE).
![](http://archives.lincolndailynews.com/2023/Jul/11/images/ads/current/nutrienag_sda_HEROES_2023.png)
"Credit losses for the large banks are expected to be modest in CRE
this quarter, but there could be bigger reserve build that we can
see as uncertainty is very high," Konrad said.
The S&P 500 banks index has fallen 9.3% this year, underperforming
the S&P 500 index which has notched a 14.6% gain.
(Reporting by Nupur Anand and Saeed Azhar in New York; Niket Nishant
in Bengaluru; Editing by Lananh Nguyen and Marguerita Choy)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |