After a regional banking crisis gripped the United States earlier this year, Ben Eisen wonders if second-quarter bank earnings reports will signal danger or relief for the sector. Eisen writes:
Lenders will sort through the damage from this year’s banking crisis when they report their financial results starting Friday.
Earnings for the second quarter will show whether the recent failures of three lenders and a slowing economy are eroding what has been a long period of strength for the industry. Earnings are expected to fall 7% in the quarter from a year earlier, according to Keefe, Bruyette & Woods.
JPMorgan Chase, Wells Fargo and Citigroup report on Friday. They will be followed by Morgan Stanley and Bank of America on Tuesday, and Goldman Sachs on Wednesday. Regional banks including Zions, Citizens Financial and Comerica begin reporting next week.
The biggest banks are expected to have fared well, or in some cases thrived. JPMorgan, the largest U.S. bank, bought First Republic Bank when it failed in May. Smaller banks may face more pressure.
The value of some assets is also declining. Interest rates rose in the second quarter, which hit the value of low-rate securities and loans that banks hold on their balance sheets. Banks had more than $500 billion in unrealized losses on their securities at the end of March, according to the Federal Deposit Insurance Corp.
They don’t need to recognize swings in the value of their bonds if they don’t make them available to sell. But holding low-rate assets can be a drag on profitability because it means banks can’t lend that money out or invest at higher rates.
Bank of America, for example, had some $100 billion in unrealized losses on bonds at the end of the first quarter. It doesn’t expect to sell the bonds. Still, investors have punished its stock this year relative to other banks.
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