Earnings season outlook

As the U.S. banking industry braces for its upcoming earnings season, investors are gearing up for a challenging outlook.

According to experts, a tough quarter is expected due to the fallout of the regional banking crisis and a slowing economy, which may have an adverse impact on profitability. However, one bank that is expected to outperform its peers is JPMorgan Chase and Co, thanks to its higher net interest margin.

The six biggest U.S. banks are expected to see a 10% drop in earnings per share from the previous year, according to Refinitiv I/B/E/S estimates. These banks will begin reporting their results on April 14, and analysts predict that tighter financial conditions and a slowing economy will result in tepid loan growth and souring credit, forcing banks to add to provisions against potential losses.

Despite large banks benefiting from an influx of cheap deposits due to savers moving from smaller lenders after the collapse of Silicon Valley Bank, bad loans could offset these gains. Ana Arsov, who leads Moody's North American banking team, predicts that there will be gradual increases in provisions for commercial real estate and consumer credit cards in 2023, which could affect the net interest income of banks.

Furthermore, banks may face challenges with a slow market for deals and capital markets activity, potentially impacting major investment banking players such as Goldman Sachs and Morgan Stanley. Although there is some strength in fixed-income, currencies, and commodities, lower equities trading compared to the previous year may offset gains.

Investors will be paying close attention to banks' balance sheets to determine which lenders attracted or lost deposits during the March banking crisis while assessing its impact on lending and the U.S. economy. The results will provide a snapshot of how readily lenders can fund operations and whether they have enough cushion to handle shocks.

In conclusion, while the U.S. banking industry may face a challenging outlook, there are still opportunities for banks to outperform their peers. By closely monitoring their balance sheets and making provisions against potential losses, banks can prepare themselves for a tough quarter and mitigate the impact of the regional banking crisis and the slowing economy.