US banks to set aside $4bn for potential losses from bad loans
The biggest US banks will signal their worries about the US economy in third-quarter earnings reports starting next week, with analysts expecting they will set aside more than $4bn to cover potential losses from bad loans.
The anticipated provisions will be far smaller than the ones made by lenders at the start of the pandemic in 2020, when they increased reserves by tens of billions of dollars to brace themselves for an economic shock that was largely avoided thanks to unprecedented monetary and fiscal stimulus.
Now, with loan demand still growing, banks are preparing for the possibility that rising interest rates will slow the economy and result in higher credit losses — a concern that has already dented bank stock prices this year.
Analysts anticipate that earnings per share across the six leading banks will decline on average about 22 per cent in the quarter.
Third-quarter revenues at JPMorgan, BofA, Citi and Wells are expected to rise year on year by about 4 per cent, benefiting from higher net interest income.
Goldman and Morgan Stanley, which derive a greater share of earnings from investment banking, are expected to see revenues fall because of slower dealmaking activity.
“Traditional investment banking is very weak. Equity capital markets are down fairly significantly,” said Christian Bolu, an Autonomous Research analyst.
The declines will sharpen the focus on banks’ management of expenses and headcounts.
Banks’ stock and bond trading divisions — on the back of volatile markets — are expected to continue their strong performance in the third quarter.
“Trading, generally speaking, should be up modestly from the third quarter of last year, which was a particularly strong quarter,” Barclays’ Goldberg said.
Additional reporting by Imani Moise
This story originally appeared on: Financial Times - Author:Joshua Franklin
