But with the growing fears of a recession as the US Federal Reserve raises interest rates aggressively to control inflation, third-quarter reserve buildup could be the biggest drag on bank profits, analysts said.
The JPMorgan Chase & Co CEO Jamie Dimonwarned Monday of a recession in the next six to nine months.
America’s largest bank by assets reports third-quarter results on Friday, followed by Wells Fargo, Citigroup and Morgan Stanley. Bank of America and Goldman Sachs Group Inc conclude results for the big banks next week.
ImageLarge-cap banks are expected to generate funds for hard times. Third quarter profits for banks are expected to fall between 13% and 46%, according to Refinitiv IBES estimates, showing that Citigroup is expected to accumulate the largest reserves in the quarter, totaling 1.51 billion of dollars.
Factors that would lead to an increase in loan loss provisions include the easing of fiscal stimulus measures, heightened geopolitical tensions and elevated inflation, Barclays analysts wrote in a note.
However, a rise in reserves does not suggest all is doom and gloom for the financial industry, according to some.
“It’s the best of times in terms of the actual quality of loans,” Wells Fargo analyst Mike Mayo said, adding that the banking industry is much more resilient with much less risk than it was before previous recessions.
It is also expected that Banks post higher interest income from the Federal Reserve’s large rate hikes.
Still, investors remain concerned that the Fed’s tightening to cool inflation will eventually lead to a recession. Shares of the big six US banks have plunged between 14% and 34% so far this year.
Source: Ambito
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