Wall Street banks are expected to face lower quarterly earnings and a bleak outlook for the rest of the year due to the recent regional banking crisis and a slowing economy. According to Refinitiv I/B/E/S estimates, earnings per share for the six biggest US banks will be down approximately 10% from last year. Although the larger banks saw a boost in net interest income from the access to cheap deposits, tighter financial conditions and a slowing economy pose challenges, forcing banks to increase provisions against potential losses. Analysts expect a difficult earnings season for banks, and some predict a slowdown in trading revenue as well.
JPMorgan Chase & Co is expected to be the top performer among the six banks, with a 30% increase in EPS due to almost 36% growth in net interest income. Meanwhile, Goldman Sachs Group and Morgan Stanley are predicted to face investment banking woes and experience declines in earnings per share of around 20%. Bad loans may offset the gains from interest payments as commercial real estate and consumer credit cards face incremental increases in provisions. The lending slowdown is also expected in areas such as commercial and industrials, autos, and mortgages.
Investors will be closely watching the results of the banks' balance sheets to determine which lenders attracted or lost deposits during the March banking crisis and assessing its impact on lending and the US economy. The recent stresses have sparked fears over bank capital and liquidity levels, which are likely to persist for the next few months. This quarter's results will give a snapshot of how readily lenders can fund operations and whether they have enough cushion to handle shocks.
In conclusion, this quarter's earnings season for banks is expected to be challenging due to the recent banking crisis and a slowing economy. The larger banks may benefit from the access to cheap deposits, but they will face challenges such as tepid loan growth, souring credit, and potentially lower trading revenue. Analysts predict that provisions against potential losses will be increased, particularly for commercial real estate and consumer credit cards, leading to incremental declines in earnings per share. Investors will closely watch balance sheets to determine the banks' resilience and stability to handle shocks.
