(Finance) – It is balance sheet time for American banks. 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. The Financial Times reports this, citing the average forecasts of analysts drawn up by Bloomberg, reporting a increase in bad debts of the 4 main US institutions.
Impaired loans
The financial newspaper estimates that the four major US banks – JP Morgan, Bank of America, Wells Fargo and Citigroup – will announce collectively 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 one-off cost component 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 indicate so a profit estimate falling by an average of 13% for the six largest US banks: Added to the four indicated who will announce their results this Friday are 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 balance sheet. Wells Fargo announced provisions of $1 billion last week. And beyond these isolated cases, the increase in ordinary and extraordinary costs will affect all institutes.
Forecasts
Data compiled by Bloomberg suggests that JP Morgan (JPM) is set to show the strongest growth among US investment banks: Earnings per share (EPS) are expected to be 3.89, down from 4.98 in the prior quarter and up 25% compared to the same quarter last year. For Citigroiup, costs and expenses remain under scrutiny and it is likely that an increase in operating costs will 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 ‘Last year. For Bank of America expects another increase in costs and credit losses: EPS will be 0.80, down from 0.88 in the prior quarter and down 1% from the same quarter last year. As is known, Goldman’s earnings are quite volatile: EPS in the third quarter is expected at 5.34, up from 3.08 in the second quarter, but down 36% compared to the same quarter last year. For Morgan Stanley, an 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 rising on the market
Despite the expected decline in profits, Investors have been buying banks’ stocks in spades 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.
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