U.S. bank earnings are expected to skyrocket in Q2, analysts predict

With predicted pandemic loan losses not materializing, most major U.S. banks are likely to announce a surprise comeback in quarterly profits next week, despite trading income falling and lending revenue stagnating due to low-interest rates and poor demand.

According to Refinitiv, the country's three largest banks, Bank of America Corp, Citigroup Inc, and JPMorgan Chase & Co, will more than double their second-quarter earnings.

Wells Fargo & Co, the fourth-largest lender in the United States, is projected to return to profitability in the second quarter after suffering its first loss since 2008.

A year ago, the country's four major banks posted a combined $33 billion in loan losses to cover projected loan losses as millions of Americans struggled financially due to pandemic lockdowns.

However, because of unprecedented government stimulus and loan repayment vacations, such losses have not materialized, and when Americans return to business as normal, the big four might record less than $1 billion in provisions in the second quarter, according to analyst projections.

According to analyst projections, Bank of America, Citigroup, JPMorgan, and Wells Fargo would post $24 billion in second-quarter profits, up from $6 billion last year.

Trading revenue, which surged throughout Wall Street owing to high volatility last year, is also projected to decline. This will be caused by a drop in lending-related interest revenue and trading.

Nonetheless, Wall Street banks should cover a portion of the gap owing to a record-breaking acquisition spree that has flooded them with advisory fees.

Goldman Sachs Group Inc and JPMorgan Chase & Co. will be the first major banks to report this quarter on Tuesday, July 13.

Analysts predict that Goldman, which has less lending subject to swings in loss provisions, would post a 50 percent increase in profit due to the strength of its advising and underwriting operations.

However, for other Wall Street banks, the deal fee windfall may have less of an impact on the bottom line this quarter.

According to RBC Capital Markets analysts, Morgan Stanley may not see the same increase in investment banking fees as its peers since fewer of its deals concluded in the quarter.

Source: Reuters