It is again balance sheet time for American banks and not all that glitters is gold. The increase in rates by the Fed was then reflected on the balance sheets of the major overseas banks in the form of impaired loans and costs. But what awaits us for the last quarter of 2023? The Financial Times, citing the average forecasts of analysts compiled by Bloomberg, reports a increase in suffering of the 4 main US institutes.
The financial newspaper estimates that the four main US banks – JP Morgan, Bank of America, Wells Fargo and Citigroup – will announce overall impaired loans increasing to $24.4 billion in the last quarter of the year. The increase in NPLs should have negative impacts on profits, which will also be affected by other negative items, including the increase in costs linked to deposit rates and a component of one-off cost of 18.5 billion, requested by the Federal Deposit Insurance Corporation to recover the costs of the failures of regional banks Silicon Valley Bank and Signature Bank last spring.
Profits falling for the major banks
The forecasts thus indicate an estimate of profit down by an average of 13% for the six largest US banks: they are added to the four indicated that will announce the results this Friday Goldman Sachs and Morgan Stanley, who will publish their results on Monday 16 January. Precisely to compensate for the reduction in profits, Citigroup is carrying out a multi-year cost reduction plan and will suffer greater costs linked to the reduction of staff on the budget. Wells Fargo announced provisions of $1 billion last week. And beyond these isolated cases, the increase in ordinary and extraordinary costs it will affect all institutes.
Data compiled by Bloomberg suggests that JP Morgan (JPM) is set to show the strongest growth among U.S. investment banks: earnings per share (EPS) are expected to be 3.89, down from 4.98 in the previous quarter and up 25% from to the same quarter last year.
For Citigroupcosts and expenses remain under scrutiny and an increase in operating costs is likely to weigh on profitability: EPS expected at 1.18, down from 1.37 in the previous quarter and down 23% compared to the same quarter of the year last.
Bank of America could announce another increase in costs and credit losses: EPS will be 0.80, down from 0.88 in the previous quarter and down 1% from the same quarter last year. As is known, the profits of Goldman Sachs are quite volatile: Q3 EPS is forecast at 5.34, up from 3.08 in Q2, but down 36% from the same quarter last year.
For Morgan Stanleyan EPS of 1.28 is expected (compared to 1.24 in the previous quarter) and down 15% compared to the same period last year.
Banks rise on Wall Street
Despite the expected decline in earnings, investors have bought the shares of the banks with both hands in the latter part of 2023, especially after the Fed signaled that interest rates had reached their peak. The KBW Nasdaq Bank Index has risen 20% since the end of October.