by Nupur Anand, Niket Nishant and Saeed Azhar
NEW YORK (Reuters) – Wall Street’s big banks are expected to post higher second-quarter profits as higher credit interest rates offset weaker M&A revenue ( MY).
According to data from Refinitiv, the earnings per share (EPS) of so-called universal banks, which have both personal and corporate customers, such as JPMorgan and Wells Fargo, are expected to jump by more than 40% in the April period. -June.
On the other hand, the consensus is pessimistic for Citigroup, whose earnings per share should show a drop of 43%, while Bank of America would see its EPS increase by only around 7%.
For investment banking behemoths like Goldman Sachs, EPS is expected to fall nearly 59%. Earnings per share of Morgan Stanley, probably penalized by the weakness of M&A, is expected to fall by 9%, despite an increase in income from the activity of wealth management.
According to David Konrad, an analyst at Keefe, Bruyette & Woods, universal banks should have benefited from consumer spending which remained strong, in contrast to the slump in investment banking, whose revenues were affected by the rise interest rates and economic uncertainties.
“Goldman Sachs will again have a lackluster quarter in investment banking, while trading was lackluster due to lower volatility,” said Argus Research analyst Stephen Biggar. The bank will likely record write-downs on its consumer business, he also predicted.
Big Wall Street banks are expected to continue to suffer from sluggish M&A activity, as global M&A activity fell to $15.7 billion in the second quarter, the lowest level since 2012, according to analysts. data from Dealogic.
DECLINE IN CUSTOMER DEPOSITS IN Q2
The leaders of the investment banks had already announced last week a downward revision of their forecasts for the second quarter against a backdrop of a decline in mergers and acquisitions and bond issues in recent months. However, some banks have noted a resumption of initial public offerings (IPOs), a sign they believe of a potential recovery in capital markets for the second half of the year.
When interest rates rise, banks generally make more money by charging their customers higher borrowing costs. But rising interest rates are also pushing customers to look for better paying vehicles and to withdraw their deposits from current accounts.
According to a note from KBW analysts, customer deposits at big banks fell to $141 billion in the second quarter, after an influx in the first when customers sought more security following the collapse of several banks. regional.
Banks could also be forced in the long term to reduce the loans granted to their customers in the light of new rules likely to oblige them to hold more capital.
The big American banks passed without incident in June the annual “stress-test” conducted by the American Federal Reserve (Fed), which showed that they had enough capital to face a serious economic recession.
The dynamism of the job market in the United States should allow the Fed to continue raising its interest rates in July, according to traders’ forecasts.
During the release of financial results, which begins on Friday, analysts and investors will focus on bank executives’ comments on loan growth and credit quality, notes Morgan Stanley analyst Betsy Graseck.
“It’s a double-edged sword. The good news is that credit is good, but the bad news is that it could mean rates need to be even higher,” he said. she added.
INCREASED RISK ON LOANS
Although consumers have shown good resilience to tighter credit conditions so far, default risks on personal loans and credit cards are expected to increase, wrote Kenneth Leon, director of research at CFRA Research, in a note.
“We anticipate higher credit risk for middle and lower class families who have higher credit card debt and cannot keep pace with the higher cost of living,” he said. he declares.
Loans for non-residential real estate could also pose problems for some US banks as the value of such property declines, analysts said. Investors are therefore now monitoring the provisions made by banks to deal with the deterioration of the commercial real estate market.
“Credit losses for the big banks are expected to be modest in commercial real estate this quarter, but there could be more provision accumulation as uncertainty is very high,” said David Konrad of Keefe, Bruyette & Woods.
The banking sector index is down 9.3% year-to-date, versus a 14.6% gain for the S&P-500.
(Reporting Nupur Anand and Saeed Azhar in New York, Niket Nishant in Bangalore; writing by Lananh Nguyen and Marguerita Choy, French version Claude Chendjou, editing by Kate Entringer)
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