US banks to see profits rise sharply in second quarter before results return to normal

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A combined file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs from Reuters archives. REUTERS

July 8 (Reuters) – With feared pandemic loan losses not materializing, most major U.S. banks are expected to post a stunning rebound in quarterly profits next week, even as trading revenues plummet and earnings from loans stagnate due to low interest rates and weak demand.

Among them, Bank of America Corp (BAC.N), Citigroup Inc (CN) and JPMorgan Chase & Co (JPM.N), the country’s three largest banks, are estimated to more than double second-quarter profits. compiled analysts. by Refinitiv.

Wells Fargo & Co (WFC.N), the fourth largest US lender, is expected to return to the dark for the second quarter after posting its first loss since 2008 last year.

A year ago, the country’s four largest banks recorded a combined $ 33 billion to cover expected loan losses as millions of Americans struggled financially amid pandemic lockdowns.

But due to extraordinary government stimulus and loan repayment holidays, those losses have not materialized and as Americans return to the status quo, the Big Four could record less than $ 1 billion in provisions for the second quarter, according to analysts’ estimates.

Together, Bank of America, Citigroup, JPMorgan and Wells Fargo are expected to report $ 24 billion in profits in the second quarter, up from $ 6 billion last year, according to analysts’ estimates.

“Standardization is playing out,” said analyst Jeff Harte of Piper Sandler. “We’re getting there.”

Goldman Sachs Group Inc (GS.N) and JPMorgan will be the first major banks to report this quarter when they report their results on Tuesday, July 13.

Analysts, however, will be looking at the pre-provision earnings of the big banks to understand their actual performance.

Typically, they expect a core business collapse amid low interest rates and lack of loan growth, especially on credit cards that many Americans, who have cut spending in the past. amid blockages, were able to repay with the help of stimulus checks.

Trading income, which surged on Wall Street last year due to savage volatility, is also expected to fall.

At JPMorgan, for example, pre-provision profit for the second quarter will be down about 20% from the period last year, according to estimates from Chris Kotowski of Oppenheimer.

This will be due to lower interest income from loans and transactions. CEO Jamie Dimon said last month that JPMorgan’s trading revenues could drop as much as 40% as markets become “more normal.”

Still, JPMorgan and other Wall Street banks are expected to make up some of the shortfall with a record takeover boom that has showered them with advisory fees. Read more

Income from financial advice at Goldman Sachs, for example, could jump 65% from the previous year, according to UBS analyst Brennan Hawken.

“We are ready for mergers and acquisitions to grab the headlines,” said Harte of Piper Sandler, adding that some banks would also report high underwriting fees.

Goldman, whose loans are less exposed to fluctuations in loss provisions, is expected to post a 50% increase in profits on the strength of its advisory and underwriting business, analysts say.

For some Wall Street banks, however, the transaction fee windfall may have less of an impact on bottom lines this quarter.

Morgan Stanley (MS.N), for example, may not post the same investment banking fee gain as its peers because fewer of its deals were closed in the quarter, according to research from analysts at RBC Capital Markets .

Reporting by David Henry in New York Additional reporting by Elizabeth Dilts Marshall in New York Editing by Michelle Price and Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

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