United States bankers are likely to record lower fourth-quarter profits. Lenders are stockpiling rainy-day funds to plan for an economic recession that is battering investment banking. NYSE: WFC (Wells Fargo), NYSE: C (Citigroup Inc.), NYSE: BAC (Bank of America Corp), and NYSE: JPM (JPMorgan Chase & Co) will report earnings this week. Meanwhile, analysts have projected that the banks, together with Goldman Sachs and Morgan Stanley, will amass about $5.7 billion in reserves. The combined sum will help plan for sourced loans.
On the other hand, the Federal Reserve has raised interest rates aggressively to tame the rising inflation rate, as it nears its highest in decades. Higher borrowing costs and rising prices have prompted businesses and consumers to curb spending. For that reason, banks have recorded constant profit decline as they serve as an economic middlemen. The US giant banks will likely record a 17% fall in their net profit during the 2023 fourth quarter from 2022.
Nonetheless, lenders are likely to gain from the rising borrowing costs that enable them to earn more via interest on loans. Analysts and investors focus on bank bosses’ commentary as the crucial economic outlook gauge. In recent weeks, top executives have warmed about a tougher business environment, prompting firms to eliminate jobs or slash compensation. Other reports indicate that Goldman Sachs will lay off thousands of employees this week.
Citigroup and Morgan Stanley have also laid off employees following an investment-banking activity plunge. The layoffs come after dealmakers handling initial public offerings, acquisitions, and mergers faced a sharp business drop in 2022 as rising borrowing costs roiled Wall Street markets. Recent research shows that global investment banking revenue fell more than 50% to $15.3 billion from a year-earlier quarter in the fourth quarter.
Overall, consumers & businesses might become a key focus in banking outcomes. Household costs have risen for much of the pandemic thanks to government stimulus and a strong job market. But many consumers are falling behind on payments although they are in good financial shape. For instance, Wells Fargo has faced regulatory penalties and a fake accounts scandal. The lender will likely book about $3.5 billion in expenses after they agreed to settle accusations over mismanagement of bank accounts, mortgages and car loans.
Analysts are investigating if banks like Bank of America and Morgan Stanley booked any write-downs on the loan that funded Elon Musk’s twitter purchase. Above all, the KBW bank stocks index rose to about 4% after sinking by almost 28% through 2022. The market has taken a sharp turn to a fearful 2023 from a hopeful 2022, as some large banks worked to overcome the predictions.
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