Earnings of Wall Street banks are under pressure after the crisis

NEW YORK (Reuters) – Most Wall Street banks are likely to report lower quarterly earnings and face a bleak outlook for the rest of the year, with last month’s regional banking crisis and slowing economy expected to hurt profitability.

Analyst estimates from Refinitiv I/B/E/S indicate that earnings per share for the six largest U.S. banks are expected to decline by about 10% from a year earlier. Banks begin reporting results on April 14.

Analysts said access to cheap deposits, which swelled for the largest banks as savers fled smaller lenders in the wake of last month’s Silicon Valley collapse, likely boosted net interest income for the largest banks.

JPMorgan Chase & Co. (JPM.N), the largest US bank, is likely to come out on top as its net interest margin — interest earned on loans versus interest paid to depositors — was higher than some of its peers, analysts said.

The bank is expected to post a 30% increase in earnings per share, supported by a nearly 36% increase in net interest income, according to Refinitiv I/B/E/S estimates and Reuters calculations.

However, tightening financial conditions and a slowing economy mean that banks face the prospect of tepid loan growth and strained credit, forcing them to increase provisions against potential losses.

“We expect a challenging earnings season for banks,” David Schiafferini, banking analyst at Wedbush Securities, said in a note.

He said bank managements would become more defensive, as they would implement liquidity measures that could lead to downward revisions to net interest income.

Earnings are also likely to be hit by another drought of deals and capital markets activity, and some analysts are forecasting a slowdown in trading revenue as well. These trends will hit especially hard investment banking powerhouses like Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N).

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Analysts said trading income, which has been a positive side in previous quarters, may suffer from lower equity trading in the first quarter compared to a year earlier, partially offset by strength in fixed income, currencies and commodities (FICC).

Goldman Sachs earnings could drop by a fifth, weighed down by investment banking woes, after a larger-than-expected 69% drop in fourth-quarter earnings, weighed down by wealth management revenue and consumer business losses.

The six banks declined to comment on upcoming results and expectations.

The S&P 500 (.SPXBK) Bank Index is down 14% year-to-date.

Reuters graphics

As interest rates rise, banks make more money from borrowers’ interest payments than they do from depositors.

Net interest income for the six largest US banks is expected to rise about 30% from a year earlier, according to analyst estimates from Refinitiv I/B/E/S.

However, gains from interest payments may be offset by bad loans.

“There will still be incremental increases in provisions coming this year,” particularly for commercial real estate and potential consumer credit cards, said Anna Arsoff, head of the North America banking team at ratings agency Moody’s Investors Service.

It expects lending to slow in areas such as trade, industry, autos and mortgages.

Investors will examine balance sheets to determine which lenders attracted or lost deposits during the March banking crisis, while assessing its impact on lending and the US economy.

The results will give a snapshot of how easy it is for lenders to fund operations and whether they have enough cushion to deal with shocks.

“Concerns about bank capital and liquidity levels are likely to persist for at least the next few months due to the recent pressures,” Gennady Goldberg, US interest rate analyst at TD Securities, said in an interview.

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Earnings per share estimates from Refinitiv I/B/E/S.

(Reporting by Saeed Azhar in New York and Mehnaz Yasmin in Bengaluru) Additional reporting by Nupur Anand and Tatiana Pautzer. Editing by Lanan Nguyen and Richard Chang

Our standards: Thomson Reuters Trust Principles.

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