Q1 2021 U.S. Bank Earnings To Shrink Significantly – Cryptovibes.com – Daily Cryptocurrency and FX News
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A sharp decline in first-quarter earnings is expected to be reported by big U.S. banks compared to a year ago when they benefited from exceptionally massive trading activities, strong deal-making, and funds set aside for loan losses being released.
According to analyst estimates from Refinitiv I/B/E/S, net income for the six biggest U.S. banks will drop by about 35% from a year earlier. After the Russian invasion of Ukraine in late February, investment banking revenues stalled.
Analyst Christopher McGratty of Keefe, Bruyette & Woods expects that the quarter will be challenging for the biggest banks. He said the biggest headwinds are the estimated revenue declines of 18% in trading and 36% in investment banking. He added:
“Last year was massive for capital markets at the banks so comparisons are hard.”
In an official report, analyst Jason Goldberg of Barclays wrote that the quarter could be seen as short-term pain with the promise of long-term gain. He noted that one good example is when PNC Financial Services Group increased its full-year expectations but lowered its first-quarter revenue forecast on March 31.
Since investors benefit from higher interest rates, they are expected to be concerned more about the prospects for banks to grow the difference between income from loans and interest paid on deposits or their net interest income and other funds.
Bank executives will be consulted to give their views on whether the U.S. economy will continue to grow if the Federal Reserve continues to raise interest rates to try to cool inflation and the war in Ukraine continues. Following the rise in food and gas prices, they may be pressed on whether lower-income borrowers can make repayments.
On April 13, the largest bank in the United States JPMorgan Chase & Co (JPM.N), will report results.
Morgan Stanley (MS.N), Citigroup Inc (C.N), Goldman Sachs Group Inc (GS.N), and Wells Fargo & Co (WFC.N) report on Thursday. The Bank of America Corp (BAC.N) report is due on April 18.
Pre-provision net revenue – which is not clouded by swings in loss reserves set during the pandemic – is expected by analysts to decline more modestly than overall profits plunge.
Susan Roth Katzke, Credit Suisse analyst, expects a 24% decline in earnings per share compared with a 7% decline in pre-provision net revenue at the banks she covers.
Investors’ area of increasing concern is whether banks, especially JPMorgan, are allowing expenses to increase too much. In the last quarter, JPMorgan’s non-interest expenses jumped 11%, partly due to higher wages. It has also cautioned of rising acquisition and technology costs.
This quarter, banks are more exposed to possible trading losses, especially in commodity markets which turned volatile following Russia’s launch of what it calls a “special military operation” in Ukraine.
After Western nations began imposing sanctions, some banks, such as Citigroup, may make provisions for losses on Russian businesses. Citigroup has said, in a severe scenario, it could lose nearly half of its $9.8 billion exposure.
Another mystery is how much banks flattened their share buybacks during the quarter. Buybacks boost earnings per share. However, as banks saw their excess capital dented by unrealized losses on bond holdings which fell in value as yields rose during the quarter, they may have been tampered with.
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