Banking Giants in US Brace for Stormy Days

Some of the biggest lenders in the US are predicted to report a decline in Q4 profits sometime in the week, as banks store up funds in anticipation of an economic meltdown, which is particularly shaking the investment banking sector.

Four leading US banks are expected to lead the spate of earning reports, starting on Friday 13th January, 2022. The list includes JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co.

The four stated lenders, joined by Morgan Stanley and Goldman Sachs, form the six banking giants projected to put together a total of $5.7 billion in reserves as part of the preparation for the expect rise in bad debts. That is about a 100% increase compared to the $2.37 billion earmarked a year earlier.

“With most U.S. economists forecasting either a recession or significant slowdown this year, banks will likely incorporate a more severe economic outlook,” analysts at Morgan Stanley noted in a comment.

The Federal Reserve has continued to raise interest rates aggressively in a bid to curb rising inflation which experts say is now close record decade high. The surge in prices and borrowing costs have made it necessary for individuals and corporations to cut spending and banks feel a major part of the burn from such slowdowns since they act as the intermediaries between the parties.

Current projections for the earnings reports put the expected Q4 net profit drop at 17% higher than the same period a year ago. However, banks will benefit from the rise in interest rates, as it sets them up for higher interest earnings on loans.

As is often the case, analysts, investors and other industry experts will trace and measure bank executives remarks as key pointers in their attempt to understand the current state of the economy. Comments from bank executives in the past few weeks have already hinted at the volatility of the business environment, which has led to many hard decisions such as compensation and job cuts.

Starting Wednesday, Goldman Sachs will cut jobs, following the same line of action as Morgan Stanley and Citigroup, and many others, who have also laid off some of their workers following a major decline in investment banking activity.

The decisions follow a steep decline in the businesses of Wall Street dealmakers handling mergers, acquisitions and initial public offerings in 2022, partly due to the effect constantly soaring interest rates has has on many economies.