Wall Street bank profitability under strain following crisis

Last month’s regional banking crisis and a sluggish economy are projected to damage Wall Street banks’ quarterly earnings and year-end prospects.

Refinitiv I/B/E/S analysts predict a 10% drop in earnings per share for the six largest U.S. banks. Banks release findings on April 14.

Analysts said the larger banks’ net interest income likely increased due to inexpensive deposits as depositors fled smaller institutions after the last month of Silicon Valley Bank’s bankruptcy.

Analysts predicted that JPMorgan Chase & Co. (JPM.N), the largest U.S. bank, would win due to its bigger net interest margin (interest made on loans minus interest paid to depositors).

Refinitiv I/B/E/S forecasts and Reuters calculations predict the bank to report a 30% increase in Earnings, driven by a 36% increase in net interest income.

Yet, tighter financial conditions and a weakening economy mean banks confront lackluster loan growth and souring credit, prompting them to increase provisions against losses.

In a report, Wedbush Securities banking analyst David Chiaverini predicted a difficult earnings season for banks.

He predicted that bank management would take defensive liquidity actions that might lower net interest revenue.

Another transaction and capital markets dry spell may hurt profits, and some analysts expect trading revenue to drop. Goldman Sachs Group Inc (GS.N) and Morgan Stanley would be particularly affected by these changes (MS.N).

Analysts expect reduced equities trade in the first quarter, largely offset by gains in fixed-income, currencies, and commodities (FICC).

With a bigger-than-expected 69% decline in fourth-quarter profit, impacted by wealth management income and consumer business losses, Goldman’s profits per share might fall by a fifth due to investment banking issues.

Six banks declined to comment on future results and expectations.

Year-to-date,.SPXBK is down 14%.

Banks earn more from borrowers’ interest payments than depositors when interest rates climb.

Refinitiv I/B/E/S analysts predict net interest income for the six largest U.S. banks to rise 30% from a year earlier.

Bad loans may negate interest payments.

Ana Arsov, head of Moody’s Investors Service’s North American banking team, predicted “incremental rises in provisions this year,” notably for commercial real estate and consumer credit cards.

She thinks commercial, industrial, car, and mortgage loans will slow down.

Investors will examine balance sheets to discover whether lenders gained or lost deposits during the March financial crisis and how it affected lending and the U.S. economy.

The results will show lenders’ funding capacity and shock tolerance.

“The current strains are expected to linger for at least the next several months,” TD Securities U.S. interest rate analyst Gennadiy Goldberg said.