The quarterly season is back at the starting line in the USA, where the large investment banks to inaugurate the new one accounting seasonincorporating the expectations update on possible interest rate cuts that the Fed will carry out this year.
The US central bank, in a picture that sees “higher rates for longer”is expected to make a maximum of this year three cuts of rates, for a total of 75 basis points, while previously a reduction of 150 points was estimated, for a total of six cuts within the year. A revision that will influence the numbers and forecasts of banks, in terms of interest margin and credit losses.
JP Morgan will kick off
Today, Jp Morgan will be the first of the large investment banks to publish the first quarter balance sheet numbers, together with the real estate mortgage giant Wells Fargo. There next week colleagues will follow Bank of America and Goldman Sachsbut the focus will also be on regional banks, such as Valley Bank, and on smaller institutions, as they will be more affected by the revised rate view. The first regional bank to report results Monday will be M&T Bank.
Revised interest expectations
Analysts' interest is focused above all on the impact that the revision of interest rate expectations will have on interest margin, the main source of revenue for banks. And while the large banks can achieve higher lending rates and lower borrowing ratesbeing perceived as safer, the smaller ones they will have to pay higher interest rates on deposits and will therefore have to review their expectations on the interest margin, given by the difference between lending and borrowing rates.
For big banks, higher rates will mean they can leverage their advantages for longer. In the case of a large bank like JP Morgan this will mean revising upwards expectations on the interest margin of 2 or 3 billion in 2024.
Commercial real estate loans
The other element to take into consideration are i commercial real estate loans. Big banks tend to have much lower exposure to commercial real estate than smaller operators and generally have higher levels of provision for credit losses. This difference could prove crucial this earnings season.
A record amount of is expected $929 billion in loans commercial real estate expiring this yearand about a third of the loans appear to have been disbursed for an amount greater than the value of the underlying properties.
