U.S. bank profits expected to drop again

Get set for mostly dismal results when the biggest American banks begin reporting their fourth quarter earnings Friday.

Analysts anticipate profits to plunge 42% at Citigroup, 39% at Wells Fargo and 33% at Bank of America. Of the big banks, only JPMorgan Chase is expected to see a moderate drop … of 5%.

Hurting the traditional lenders: falling interest rates due to the pandemic. Analysts say that produced a record decline in the margin between when they charge and what they pay for money. Banks also had to set aside more than $65 billion for expected loan losses.

But the booming capital markets business should boost results at the traditional investment banks. Profits are expected to rise 1% at Morgan Stanley and 43% at Goldman Sachs.

The fourth quarter may prove to be the low for the sector. Refinitiv’s IBES estimates banks’ profits could more than double in the first and second quarters of this year as vaccines get distributed and the Blue wave in Washington delivers more economic stimulus. And in anticipation of that, investors have driven bank stocks up 35% since early November.

Video Transcript

- Get set for mostly dismal results when the biggest American banks begin reporting their fourth quarter earnings Friday. Analysts anticipate profits to plunge 42% at Citigroup, 39% at Wells Fargo, and 33% at Bank of America. Of the big banks, only JPMorgan Chase is expected to see a moderate drop of 5%.

Hurting the traditional lenders: falling interest rates due to the pandemic. Analysts say that produced a record decline in the margin between what they charge and what they pay for money. Banks also had to set aside more than $65 billion for expected loan losses. But the booming capital markets business should boost results at the traditional investment banks. Profits are expected to rise 1% at Morgan Stanley and 43% at Goldman Sachs.

The fourth quarter may prove to be the low for the sector. Refinitiv's IBES estimates banks' profits could more than double in the first and second quarters of this year as vaccines get distributed and the Blue wave in Washington delivers more economic stimulus. And in anticipation of that, investors have driven bank stocks up 35% since early November.