US bank trading and deposits in focus after rollercoaster month
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[March 27, 2023] By
Tatiana Bautzer and Nupur Anand
New York (Reuters) - As U.S. banks prepare to close the books on a
tumultuous quarter, analysts say trading revenue and deposits are among
the key numbers to watch when lenders report earnings in mid-April.
After two high-profile bank closures this month shook confidence in the
industry, observers are focused on whether firms will become more
conservative by reining in lending or suspending stock buybacks.
JPMorgan Chase & Co., the biggest U.S. lender, will report its
first-quarter results on April 14, followed by rival Bank of America
Corp on April 18.
The financial industry is still reeling from this month's dramatic
events, which rattled investors and whipsawed markets.
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Regulators shuttered Silicon Valley Bank (SVB) and Signature Bank, the
second and third largest closures in the nation's history. Authorities
then took unprecedented action to backstop the collapsed companies'
deposits and introduced new measures to shore up confidence. Eleven
lenders later threw a $30 billion lifeline to First Republic Bank. And
UBS Group AG bought rival Credit Suisse Group AG in a hastily-arranged
deal under pressure from the Swiss government.
The ups and downs may have helped banks' trading desks as choppy markets
fueled client activity.
"Trading profitability will be one of the key items to watch for after
the huge volatility in the market," Stephen Biggar, an analyst at Argus
Research in New York, told Reuters. It "can either turn out to be
lucrative or unprofitable for some banks depending on the key positions
that they have taken," he said.
The effect on broader earnings could yet be "limited," because much of
the turmoil occurred in the final month of the quarter, Oppenheimer
analysts led by Chris Kotowski wrote in a report on Thursday.
Major banks will also have to account for unrealized losses in their
longer-term securities portfolios to consider the possibility that the
U.S. Federal Reserve will keep interest rates higher for longer, the
Oppenheimer analysts wrote. The portfolios will be scrutinized after SVB
unraveled in part because of a $1.8 billion loss it took on its bond
holdings.
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![](../images/032723PIX/busine36.jpg)
JPMorgan Chase Bank is seen in New York
City, U.S., March 21, 2023. REUTERS/Caitlin Ochs
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A group of 25 banks, including some of the largest in the U.S., had
held-to-maturity securities portfolios that equated to 29% of their
tangible common equity, Oppenheimer estimated. The larger banks can
avoid selling the securities at a loss because they have enough
liquidity, or cash on hand, to meet demand from depositors.
Meanwhile, investment banking divisions will probably suffer as
topsy-turvy markets discouraged companies from issuing bonds or
stocks. Oppenheimer forecast total investment banking revenue will
sink 40% in the first quarter from a year earlier for the six
largest U.S. banks: JPMorgan, Bank of America, Wells Fargo & Co,
Citigroup Inc, Goldman Sachs Group Inc and Morgan Stanley.
$1 TRILLION SHIFT
The "most vulnerable" U.S. banks are likely to have lost a total of
about $1 trillion in deposits since last year, with half of the
outflows occurring in March following the collapse of SVB, JPMorgan
analysts estimated in a March 22 note.
While billions of dollars of those deposits landed at the biggest
banks, some analysts said the influx was unlikely to provide a major
boost to their earnings. That is because companies and wealthy
clients have moved their money out of deposit accounts and into
bonds or Treasuries, where they earn a greater return.
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The uncertain outlook will probably prompt banks to suspend share
buybacks to conserve cash, analysts added. And lenders will probably
set aside more rainy-day funds to cover potential losses from soured
loans, said Biggar at Argus.
Investors are becoming increasingly focused on the rising cost of
funding for banks, which could weigh on earnings, analysts at Piper
Sandler wrote in a note last week.
"Recent bank failures have resulted in a remarkable ongoing
reevaluation process of banks' deposit bases and overall liquidity
profiles that will likely have ripple effects for many years to
come," they wrote.
(Reporting by Nupur Anand and Tatiana Bautzer in New York; Editing
by Lananh Nguyen and Diane Craft)
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