Berliner Boersenzeitung - After spring crisis, US banks face subdued profit outlook

EUR -
AED 4.05797
AFN 75.682873
ALL 98.713824
AMD 427.756966
ANG 1.99036
AOA 1054.542868
ARS 1072.22515
AUD 1.605117
AWG 1.991405
AZN 1.880797
BAM 1.95174
BBD 2.229791
BDT 131.975463
BGN 1.955004
BHD 0.416421
BIF 3195.639152
BMD 1.104802
BND 1.423127
BOB 7.630884
BRL 6.01277
BSD 1.104368
BTN 92.758105
BWP 14.559252
BYN 3.614149
BYR 21654.114909
BZD 2.225999
CAD 1.491427
CDF 3170.226967
CHF 0.938965
CLF 0.036486
CLP 1006.750602
CNY 7.776587
CNH 7.773452
COP 4623.926894
CRC 570.607851
CUC 1.104802
CUP 29.277247
CVE 110.756476
CZK 25.343069
DJF 196.345136
DKK 7.459405
DOP 66.895523
DZD 146.809398
EGP 53.4506
ERN 16.572027
ETB 133.569992
FJD 2.423438
FKP 0.841372
GBP 0.83287
GEL 3.010562
GGP 0.841372
GHS 17.51118
GIP 0.841372
GMD 77.336351
GNF 9540.516154
GTQ 8.537241
GYD 230.942276
HKD 8.576742
HNL 27.498541
HRK 7.511559
HTG 145.617086
HUF 400.043201
IDR 16910.427502
ILS 4.182017
IMP 0.841372
INR 92.868036
IQD 1447.290333
IRR 46512.154977
ISK 149.501834
JEP 0.841372
JMD 174.271957
JOD 0.782975
JPY 161.74849
KES 142.51915
KGS 93.241005
KHR 4488.257703
KMF 491.581679
KPW 994.320977
KRW 1463.923104
KWD 0.337962
KYD 0.920257
KZT 533.623047
LAK 24385.500525
LBP 98990.239643
LKR 325.789341
LRD 214.082973
LSL 19.212906
LTL 3.262192
LVL 0.668283
LYD 5.231209
MAD 10.778996
MDL 19.320198
MGA 5021.324077
MKD 61.480161
MMK 3588.353089
MNT 3754.116403
MOP 8.831349
MRU 43.932444
MUR 51.097203
MVR 16.969808
MWK 1916.830822
MXN 21.448508
MYR 4.610895
MZN 70.574752
NAD 19.212434
NGN 1845.836936
NIO 40.601259
NOK 11.675761
NPR 148.412569
NZD 1.762827
OMR 0.425352
PAB 1.104368
PEN 4.108203
PGK 4.332757
PHP 62.161119
PKR 306.803747
PLN 4.294751
PYG 8604.827558
QAR 4.022639
RON 4.977021
RSD 117.037203
RUB 105.676427
RWF 1473.253175
SAR 4.146844
SBD 9.161639
SCR 14.640679
SDG 664.541411
SEK 11.337254
SGD 1.427293
SHP 0.841372
SLE 25.241741
SLL 23167.135267
SOS 630.841912
SRD 34.213488
STD 22867.166282
SVC 9.662594
SYP 2775.847548
SZL 19.079731
THB 36.304047
TJS 11.739579
TMT 3.866806
TND 3.366299
TOP 2.587558
TRY 37.805657
TTD 7.490351
TWD 35.302061
TZS 3010.585466
UAH 45.577346
UGX 4056.433263
USD 1.104802
UYU 46.004301
UZS 14080.699031
VEF 4002202.4921
VES 40.737738
VND 27249.93593
VUV 131.164287
WST 3.090642
XAF 654.574611
XAG 0.034704
XAU 0.000416
XCD 2.985782
XDR 0.814997
XOF 651.275168
XPF 119.331742
YER 276.559476
ZAR 19.187751
ZMK 9944.539063
ZMW 28.905954
ZWL 355.745723
  • CMSD

    -0.0100

    24.93

    -0.04%

  • CMSC

    0.0100

    24.78

    +0.04%

  • BCC

    -1.8600

    139.53

    -1.33%

  • SCS

    -0.3300

    12.87

    -2.56%

  • BCE

    -0.3900

    34.44

    -1.13%

  • NGG

    -1.2700

    68.78

    -1.85%

  • RIO

    -0.3400

    70.82

    -0.48%

  • JRI

    -0.1500

    13.38

    -1.12%

  • GSK

    -0.8500

    39.45

    -2.15%

  • RBGPF

    -1.3000

    59.5

    -2.18%

  • AZN

    0.9100

    79.58

    +1.14%

  • RYCEF

    -0.0300

    6.9

    -0.43%

  • BTI

    -0.4800

    35.97

    -1.33%

  • VOD

    -0.2100

    9.74

    -2.16%

  • BP

    0.2800

    32.37

    +0.86%

  • RELX

    -0.0500

    47.29

    -0.11%

After spring crisis, US banks face subdued profit outlook
After spring crisis, US banks face subdued profit outlook / Photo: Patrick T. Fallon - AFP/File

After spring crisis, US banks face subdued profit outlook

The upcoming deluge of US bank earnings is expected to show more pressure on deposits, an uptick in reserves for bad loans and much talk about potential new regulations.

Text size:

While there is always the potential for a shock disclosure, banking industry experts are generally anticipating a picture of subdued profitability, rather than a repeat of the crisis that pummeled the industry this spring.

"You're going to see some challenges on the earnings picture," said Chris Wolfe, a managing director at Fitch Ratings, who expects banks to set aside greater reserves as households savings erode.

"There's still a recessionary element that's playing into forecasts even if that's getting pushed out a little further," Wolfe said.

The second-quarter reporting season kicks off Friday with reports from three banking giants: JPMorgan Chase, Citigroup and Wells Fargo, which will be followed early next week by Bank of America and Goldman Sachs.

Reports from these behemoths offer a reading on the US consumer because of these banks' extensive credit card operations and lending tied to home and car loans.

The focus then shifts to regional players such as Cleveland-based KeyCorp, Dallas-based Comerica, Los Angeles-based PacWest BanCorp and Alabama's Regions Financial.

These midsized banks suffered a plunge on Wall Street in the spring amid fears that the crisis that felled Silicon Valley Bank, First Republic and Signature Bank would drag down other lenders.

- Paying for deposits -

The largest banks are projected to vary in terms of profitability compared with last year, with analysts still seeing a tepid merger and acquisition market as crimping investment banking revenues.

But the outlook is generally worse for the midsized players, which face intense pressure to retain deposits in the shifting US monetary policy landscape.

The Federal Reserve has lifted interest rates 10 straight times since early 2022 in a bid to counter inflation that has scrambled the picture after a lengthy stretch of very low interest rates.

"Banks have had to pay up for the deposits to keep them," said Stuart Plesser, senior director, S&P Global Ratings. "What you're going to see is profitability start to come under pressure."

S&P in May shifted the ratings outlook to "negative" on nine regional banks, although they are still investment grade.

While analysts expect some erosion in deposits this time around, they are not anticipating significant drops akin to April, when First Republic's disclosure of a more than 40 percent fall in deposits precipitated the lender's government-organized auction a week later.

Clifford Rossi, a former risk management executive at Citigroup and a professor at the University of Maryland, said the shift in monetary policy has also burdened banks with unrealized losses, which reflect the erosion in value of long-term US Treasury-linked assets due to interest rate increases.

"I think there's still a liquidity risk for some of these institutions until we get past these interest rate issues," Rossi said.

Midsized banks are also seen as facing the brunt from significant new regulations that could crimp lending.

On Monday, Michael Barr, the Federal Reserve's vice chair for supervision, announced a series of measures to tighten banking regulation and supervision.

They include applying higher capital requirements to banks with assets of at least $100 billion, rather than the current standard of only those with $700 billion or more in assets.

Regional lenders have signaled they expect declines in net interest income due to the higher payments needed to retain deposits.

This operating challenge is one reason experts like Wolfe see banking as positioned for potential consolidation as long as regulators permit it.

(P.Werner--BBZ)