With feared pandemic loan losses not materializing, most major U.S. banks are expected to report a stunning rebound in quarterly profits next week, despite trading income falling and lending revenue stagnating due to low interest rates and weak demand.
According to Refinitiv analyst estimates, the country’s three largest banks, Bank of America Corp, Citigroup Inc, and JPMorgan Chase & Co, will more than double their second-quarter profits.
Wells Fargo & Co, the fourth-largest lender in the United States, is expected to return to profitability in the second quarter after posting its first loss since 2008. A year ago, the country’s four largest banks booked a combined $33 billion in loan losses to cover expected loan losses as millions of Americans struggled financially due to pandemic lockdowns.
However, because of extraordinary government stimulus and loan repayment holidays, those losses have not materialized, and as Americans return to business as usual, the big four could record fewer than $1 billion in provisions in the second quarter, according to analyst estimates.
According to analyst estimates, Bank of America, Citigroup, JPMorgan, and Wells Fargo will report $24 billion in second-quarter profits, up from $6 billion last year. “Normalization is taking place,” said Piper Sandler analyst Jeff Harte. “We’re on our way.”
When Goldman Sachs Group Inc and JPMorgan Chase & Co. report their results on Tuesday, July 13, they will be the first major banks to report this quarter.
Analysts, on the other hand, will be looking closely at big banks’ pre-provision profits to see how they are really performing.
In general, they anticipate a slump in core businesses due to low interest rates and a lack of loan growth, particularly on credit cards, which many Americans who reduced spending during lockdowns were able to pay off with assistance from stimulus checks. Trading revenue, which soared across Wall Street due to wild volatility last year, is also expected to fall.
According to Oppenheimer analyst Chris Kotowski, pre-provision second-quarter earnings at JPMorgan will be down about 20% from the previous year.
This will be caused by a drop in lending-related interest income and trading. Last month, CEO Jamie Dimon stated that JPMorgan trading revenue could fall by up to 40% as markets return to “normalcy.” Nonetheless, JPMorgan and other Wall Street banks should be able to make up some of the shortfall thanks to a record-breaking takeover boom that has flooded them with advisory fees.
According to UBS analyst Brennan Hawken, financial advisory revenue at Goldman Sachs could increase by 65 percent year on year.
“We’re set up for M&A to take the headlines,” Piper Sandler’s Harte said, adding that some banks will also report high fees from securities underwriting.
Analysts predict that Goldman, which has less lending exposed to swings in loss provisions, will report a 50 percent increase in profit due to the strength of its advisory and underwriting businesses. However, for some Wall Street firms, the deal fee windfall may have less of an impact on the bottom line this quarter.
According to RBC Capital Markets research, Morgan Stanley may not show the same increase in investment banking fees as its peers because fewer of its deals closed in the quarter.