As investors prepare for disappointing earnings reports across much of the business world, the nation’s largest banks are expected to post solid earnings this week thanks to their central role in the resurgent economy.
Banks’ quarterly reports will reflect a recovery that will be both bumpy and choppy – their merchants are likely to fall short of last year’s profits, while the consumer divisions are likely to fare better as vaccinated Americans spend more on goods and leisure.
“Economic health is key for banks,” said Alison Williams, an analyst at Bloomberg Intelligence. “The consumer is constantly spending – and the business looks healthy.”
The results, which will appear this week, will be associated with a period of transition – from July, when there was high optimism, to September, when the coronavirus variant Delta again led to an increase in infection rates, and analysts lowered their expectations for economic growth.
As the infection wanes, a host of factors continue to cause turbulence: continued supply chain disruptions and labor costs are fueling inflation, and the Federal Reserve may begin to cut some of its support next month. And the further results of banks will largely depend on how confident consumers and businesses are in obtaining loans.
At the beginning of the pandemic, credit growth was very low, and so far it has been slowly recovering. Consumers and businesses have benefited greatly from government stimulus measures that have reduced demand for loans and helped them pay off their debts or accumulate more cash.
But Richard Ramsden, an analyst at Goldman Sachs, wrote in a recent report that demand for loans is showing signs of growth.
“We believe we have reached a turning point,” he wrote. “We see the prospects as increasingly promising.”
The first major bank to release results this week will be JPMorgan Chase, which analysts expect to report higher earnings on Wednesday. Four more firms – Bank of America, Wells Fargo, Citigroup and Morgan Stanley – will post earnings on Thursday, while Goldman Sachs will report on Friday.
Some of the profits are likely to come from the money lenders already have on hand, as they cut back the rainy day funds they had set aside earlier during the pandemic to guard against high default rates that never materialized thanks to government efforts. to stimulate.
Banks’ operations on Wall Street are expected to show good deal results. Investment bank JPMorgan has benefited from a “very robust” environment with better-than-expected M&A performance, Marianne Lake, co-executive director of consumer and public banking, said at an investor conference last month.
But trading revenue, which surged at the start of the pandemic during a boom in market activity, is likely to fall about 10 percent from last year, she said. Analysts expect other lenders to experience a drop due to these strong results as well.
Ms Lake was optimistic about the behavior of households and companies in the coming months. “We really expect loans to start growing,” she said at an investor conference.
Banks’ shares are up about 38 percent in 2021, and their shares are likely to rise as the economy picks up steam, Susan Roth Katzke, an analyst at Credit Suisse, writes in her research report.
However, investors should be careful as bank valuations are already high and lenders are likely to face tighter regulation from the Biden administration, which could reduce their bottom line, writes James Fotheringham, an analyst at BMO Capital Markets.
Last month, Senator Elizabeth Warren asked the Federal Reserve to force Wells Fargo to stop its core banking activities, such as providing checking and savings accounts and loans, from its other financial services. In September, the company also faced fines and penalties totaling $ 322.6 million for problems in the mortgage business and misconduct with foreign exchange.
Investors and other companies will closely watch the lending giants to learn about their economic prospects and can be guided by their stance on public policy.
Throughout the pandemic, bank executives have expressed their support for stimulus programs, and more recently, they have spoken out about countering the debt ceiling. Wall Street banks are also a barometer of labor force trends, especially as large employers use teleworking schemes and vaccine policies, although banks take different approaches. Goldman Sachs and JPMorgan recalled employees back to the office in the summer, but Wells Fargo delayed returning its employees until January 10.
Another topic that investors might be looking out for is succession planning at major financial giants, especially after Bank of America CEO Brian Moynihan made sweeping leadership changes, promoting executives after some of its most influential CEOs. decided to retire or move to other positions. JPMorgan and Morgan Stanley also changed their leadership positions to prepare a new guard of executives who could eventually take the helm.
But most of all, investors will pay close attention to the forecasts of bankers, given the many economic risks that lie ahead.
“We have a better macro environment, which is good,” said Mark Mason, Chief Financial Officer of Citigroup, at a September conference at which Ms. Lake also spoke. The bank is closely monitoring everything from inflation to the labor market and slowing economic growth in China. But on the whole, his assessment is that “the world economy and sentiment remain quite positive,” he said.
