Big US banks see Q4 core revenue boost on economic upswing

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Analysts expect U.S. central banks to show an increase in fourth-quarter earnings due to new loans and to strengthen Treasury yields even if revenues will be combined with differences in how each institution calculates the losses of the loan.

On Friday, JPMorgan Chase & Co (JPM.N) and Citigroup Inc (CN) are expected to post about 20% and 30% reductions, respectively, on profits compared to the previous quarter, while Bank of America Corp ( BAC. N) profits will increase by 20% if it reports on Jan. 19, according to analyst estimates compiled by Refinitiv as of Friday.

Wells Fargo & Co, which also reported on Friday, is expected to show a 67% profit.

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That mixed performance will be due to the different speeds at which banks begin to reverse the accounting costs of unpredictable loan-related loan losses. Other issues are the cost of restructuring and sale of goods at Citigroup and Wells Fargo.

Goldman Sachs Group Inc (GS.N) and Morgan Stanley, (MS.N), meanwhile, are expected to report a fourth-quarter decline in profits of about 7% and 2%, respectively, as revenue from non-exchange revenues has been declining since. special. levels.

Overall, however, the picture is likely to be positive and analysts expect bank executives to express optimism about the prospect of earning money.

Operating gains are expected to increase as continued economic growth accelerates loan growth and as profits from Treasury securities increase, or at least hold, during the quarter.

“If investors look under the hood, there is much good to be seen,” Odeon Capital Group analyst Dick Bove wrote Thursday.

Overall, major central bank profits will rise by about 6% on average after cutting off loan losses, taxes and unconventional offers, according to Goldman Sachs analyst Richard Ramsden.

More consumers and businesses have returned to their banks to get loans in the fourth quarter after last year’s support for government incentives, analysts said.

Central bank loan balance has risen by about 4% in the fourth quarter, the fastest growth in nearly two years, according to Deutsche Bank analyst Matt O’Connor, based on Fed data up to Dec. 22. That power comes from both a consumer credit card and a business loan, wrote a note.

The quarter also provided a taste for the high-interest rates that could arise as Treasury yields increase in 2022, according to Gerard Cassidy of RBC Capital Markets.

The difference in the daily yield rate between short- or long-term government securities, known as the yield curve, increased slightly over the quarter.

Betting on these excellent trends, investors pushed the KBW Bank Index (.BKX) up 35% by 2021, easily surpassing the S&P 500 profit of 27%. (. SPX)

“The late collection on 4Q loan growth, coupled with the recent rise in interest rates gives the bank (direction) the interest rate at 1Q22 and for a full year,” wrote O’Connor.

In view of the uncertain economic outlook due to inflation and the variability of the Omicron COVID-19, however, some investors are wary of buying more bank shares.

Doubts are growing about the Fed’s ability to maintain economic stability on which lending growth is dependent after the central bank last week released minutes at its latest policy meeting which showed officials could raise interest rates faster than expected to reduce inflation.

Jason Ware, chief investment officer at Albion Financial Group, said he was considering buying more bank shares but was skeptical, in part because of warnings about higher yields.

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He recalls, too, he added, with a history that suggests that “bank shares do better with inflation than they do during inflation.”

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