Most Wall Street banks are likely to report lower quarterly earnings and face a dour outlook for the rest of the year, with last month’s regional banking crisis and a slowing economy expected to hurt profitability.
Earnings per share for the six biggest U.S. banks are expected to be down about 10% from a year earlier, analyst estimates from Refinitiv I/B/E/S show. Banks start reporting results on April 14. Access to cheap deposits, which swelled for bigger banks as savers fled smaller lenders in the wake of Silicon Valley Bank’s collapse last month, likely boosted net interest income for the largest banks, analysts said.
Profits are also likely to be hit by another dry spell for deals and capital markets activity, and some analysts are predicting a slowdown in trading revenue as well. These trends would especially hit investment banking powerhouses like Goldman Sachs Group Inc and Morgan Stanley.
Trading income could suffer from lower equities trading in the first quarter versus a year earlier, partially offset by strength in fixed-income, currencies and commodities (FICC), analysts said.
Goldman’s earnings per share could fall by a fifth, hurt by investment banking woes, after a bigger-than-expected 69% drop in fourth-quarter profit, hurt by wealth management revenue and consumer business losses.
The six banks declined to comment on upcoming results and forecasts.
The S&P 500 bank index is down 14% year-to-date.
As interest rates rise, banks make more money on borrowers’ interest payments than they pay out to depositors. Net interest income for the six biggest U.S. banks are expected to be up about 30% from a year earlier, according to analyst estimates from Refinitiv I/B/E/S.
However, gains from interest payments may be offset by bad loans.
“There will still be incremental increases in provisions coming in this year,” particularly for commercial real estate and potentially consumer credit cards, said Ana Arsov, head of the North American banking team at rating agency Moody’s Investors Service.
She expects a lending slowdown in areas such as commercial and industrials, autos and mortgages.
Investors will scrutinize balance sheets to determine which lenders attracted or lost deposits during the March banking crisis, while assessing its impact on lending and the U.S. economy.
The results will give a snapshot of how readily lenders can fund operations and whether they have enough cushion to handle shocks.
“The fears over bank capital and liquidity levels are likely to persist for at least the next few months because of the recent stresses,” Gennadiy Goldberg, U.S. interest rate strategist at TD Securities, said in an interview.