Analysts are wondering if America’s second quarter earnings season this week will mark peak earnings.
The week will be dominated by reporting from the country’s six biggest banks and a handful of others, including a major airline.
US analysts expected the majors – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Morgan Stanley and Goldman Sachs – to report a huge rebound in quarterly profits this week.
That will be even as the banks trading income slumps and lending revenue stalls on low interest rates and weak demand – especially home mortgages.
Analysts expect aggregate year-on-year earnings growth of 65.4% for companies in the S&P 500 index, up from the 54% growth forecast made at the beginning of the quarter, according to Refinitiv.
The AMP’s Dr Oliver says that for some US companies, the rise could be as high as 90% (especially energy companies).
The reason for the forecast earnings surge is the sharp difference between the two quarters – in the three months to June, 2020, the four biggest banks (JP Morgan, Bank of America, Citi and Wells Fargo) tucked away $US33 billion into bad debt and loan loss provisions on the expectation that customers would default on their loans because of the impact of the pandemic and the lockdown.
The June, 2021 quarter will see a repeat of the March quarter’s ow provisions for bad debts as well as the release of billions from those loan loss reserves back to the profit and loss accounts, as they did in the first quarter.
At best analysts reckon the big four banks will put away $US1 billion for the June quarter, which virtually means a massive rise in earnings on a comparative basis.
The three majors – Bank of America Corp, Citigroup Inc and JPMorgan Chase- are forecast to more than double their second-quarter profits, according to analyst estimates.
Wells Fargo & Co, the fourth-largest US bank is expected to return to profits after last year posting its first loss since 2008.
Together, Bank of America, Citigroup, JPMorgan and Wells Fargo are expected to report $24 billion in second-quarter profits compared with $6 billion last year, analyst estimates show.
Goldman Sachs and JPMorgan will be the first big banks to report when they unveil their results on tomorrow (Tuesday). Bank of America, Citi and Wells Fargo report on Wednesday and Thursday sees Morgan Stanley release its results.
Those Morgan Stanley figures will be scrutinised to see if there are any new losses from the collapse of the Archegos hedge fund group that has already cost the bank of more than $US900 million.
US banking analysts will be looking at the strength of items like trading income (expected to be weak) and interest income (weak from low interest rates and falling demand for home loans). Analysts say the size of the headline profits could be the best part of the quarterly reports.
Other financial groups reporting include US Bancorp, Blackrock (the big fund manager), PNC Financial. Other S&P 500 companies reporting include Pepsi Co, Delta, Alcoa and Conagra are down to release results this week.
One area that will look good is an expected surge in fee income from the record-breaking takeover boom which will see the investment banking arms book massive gains.
Goldman Sachs is expected to book a 50% jump in profit on the strength of its advisory and underwriting businesses. it is less dependent on lending and loan loss reserves releases than its rivals (it put way a smaller amount last year that its peers).
