Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

U.S. banks' Q3 profits set to shrink on economic risks, deal slump

Economy Oct 07, 2022 06:21PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
3/3 © Reuters. A person enters the JPMorgan Chase & Co. New York Head Quarters in Manhattan, New York City, U.S., June 30, 2022. REUTERS/Andrew Kelly 2/3
 
US500
-0.03%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
C
+0.10%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BAC
+0.24%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GS
+0.68%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
+0.19%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DBKGn
-0.64%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Saeed Azhar and Niket Nishant

NEW YORK (Reuters) - The biggest U.S. banks are expected to report weaker third-quarter profits as the economy slowed and volatile markets put the brakes on dealmaking.

Four of the nation's largest lenders - JPMorgan Chase & Co (NYSE:JPM), Wells Fargo (NYSE:WFC) & Co, Citigroup Inc (NYSE:C) and Morgan Stanley (NYSE:MS) - will report third-quarter earnings on Friday of next week.

The results are expected to show a slide in net income after turbulent markets choked off investment-banking activity and lenders set aside more rainy-day funds to cover losses from borrowers who fall behind on their payments.

Banks typically earn more when interest rates rise because they can charge customers more to borrow. But their fortunes are also tied to the health of the broader economy.

The Federal Reserve has raised the benchmark rate from near zero in March to the current range of 3.00% to 3.25% and signalled more increases. While rising rates tend to buoy bank profits, the broader risk of an economic downturn sparked by high inflation, supply-chain bottlenecks and the war in Ukraine could weigh on future earnings. Higher rates are expected to boost net interest income at the two largest U.S. banks, JPMorgan and Bank of America Corp (NYSE:BAC), but the jump in borrowing costs has also hurt their mortgage and auto-lending businesses by cooling demand.

"The concern is that rates will rise too much and slow the economy or push it into a recession," said Matt O'Connor, an analyst at Deutsche Bank (ETR:DBKGn), wrote in a research note.

Analysts expect profit at JPMorgan to drop 24%, while net income at Citigroup and Wells Fargo is forecast to decline 32% and 17%, respectively, according to Refinitiv I/B/E/S data.

Investment-banking powerhouse Goldman Sachs Group Inc (NYSE:GS) is expected to report a 46% plunge in profit when it reports on Oct. 18, while earnings at rival Morgan Stanley are seen falling 28%. The drop comes as corporations' interest in mergers, acquisitions and initial public offerings dried up.

Analysts expect Bank of America's third-quarter profit to fall nearly 14%, with robust growth at its consumer division estimated to partially offset the decline in advisory fees.

The S&P 500 bank index is down almost 30% this year. Shares of Goldman Sachs and Morgan Stanley, which are not part of the index, are down 21.4% and 19.5% respectively during the same period.

GRAPHIC: Investment banking revenue drop by region - https://graphics.reuters.com/USA-BANKS/akpezdxobvr/chart.png

STEEP FALL

JPMorgan President Daniel Pinto told investors last month that he expected the bank's investment banking fees to fall between 45% and 50% in the third-quarter.

For some investment-banking businesses, weakness was exacerbated by a decline in large private-equity buyouts. Dealmaking in that market dropped 54% to $716.62 billion in the third quarter from the same period last year, according to Dealogic data.

U.S. banks wrote down $1 billion on leveraged and bridge loans as rising interest rates made it tougher for them to offload high-risk debt onto investors and other lenders.

"We are expecting further losses on these deals," said Richard Ramsden, an analyst at Goldman Sachs who oversees research on large banks. "It's going to vary quite a bit," depending on where the transactions were initially priced and how much exposure remains, he said.

Wall Street banks took combined losses of $700 million on the sale of $8.55 billion in loans and bonds backing the leveraged buyout of business software company Citrix Systems Inc (NASDAQ:CTXS), Reuters reported last month, citing a person familiar with the matter.

Analysts also said banks will set aside more reserves in anticipation of more soured loans.

"We expect moderate, yet increasing, negative impact on banks' asset quality and loan growth stemming from the higher rates, inflation and a mild recession in the U.S., negating some of the benefits of higher rates," analysts at Fitch Ratings wrote in a report.

The ratings agency expects overall bank loans to grow 10% to 11% this year, but that could peter out as interest rates climb and the economy slows.

"Banks are going to be facing a much different 2023 than they did in 2022," said Christopher Wolfe, who oversees Fitch's ratings and analysis of U.S. and Canadian banks.

GRAPHIC: Global investment banking revenues for top 10 banks - https://graphics.reuters.com/USA-BANKS/lgpdwrxeovo/chart.png

 

 

U.S. banks' Q3 profits set to shrink on economic risks, deal slump
 

Related Articles

China's COVID protests weigh on European shares
China's COVID protests weigh on European shares By Reuters - Nov 28, 2022

(Reuters) - European shares fell from three-month highs on Monday, led by declines in energy, retail, and mining stocks, as widespread protests in China against strict COVID-19...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
FMGK Blue
FMGK Blue Oct 09, 2022 3:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Banks profits are NOT set to shrink due to Economic conditions. Higher rates = higher bank profitability. Higher Stocks volatility = Higher bank profitability.
Kerry Ditto
Kerry Ditto Oct 08, 2022 8:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
be ready for massive stock market rally coming. cheers
Kerry Ditto
Kerry Ditto Oct 08, 2022 8:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
if Friday's good economic news were bad to stock market. any bad earnings report should be extremely good to stock market. massive stock market next week is assured.
ROB Stone
ROB Stone Oct 08, 2022 6:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It's the beginning of the end. Greed will ultimately have banks either bailed out of forced to file bankruptcy. Sad, bailouts come at the expense of taxpayers...
Ernie Keebler
Ernie Keebler Oct 07, 2022 7:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So profits will fall from record breaking ones.  What's the actual numbers compared to the previous 5 years of profits? Are CEO's compensations going to drop? Highly doubtful.  At some point extreme profits are unsustainable.  Get real they are not hurting, but if they do they'll get bailed out anyway.
Woe Dee
Woe Dee Oct 07, 2022 7:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Greed is the scourge of society. It cannot be stopped.
Woe Dee
Woe Dee Oct 07, 2022 7:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Greed is the scourge of society. It cannot be stopped.
Woe Dee
Woe Dee Oct 07, 2022 7:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Greed is the scourge of society. It cannot be stopped.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email