US Banks Earnings Announcement... Expect Significant Increase in Bond Sales and Reduction in Loan Loss Provisions

[Asia Economy Reporter Byunghee Park] As the U.S. earnings season kicks off, major banks will simultaneously release their first-quarter results this week.

JP Morgan Chase, Goldman Sachs, and Wells Fargo will report on the 14th, Bank of America (BOA) and Citigroup on the 15th, and Morgan Stanley on the 16th.

Financial information firm Refinitiv expects corporate net profits to increase by 25% in the first quarter of this year. In particular, net profits in the financial sector are expected to rise by 76%.

Last year, the banking sector recorded one of the worst returns, following energy and real estate. However, the situation is expected to reverse this year.

Gerard Cassidy, investment strategist at RBC Capital Markets, predicted that the banking sector will be one of the best-performing sectors this year. Cassidy especially expects BOA to deliver the strongest results.

Cassidy explained that a sharp increase in bank net profits is anticipated due to a reduction in loan loss provisions. Banks had set aside large loan loss provisions last year in preparation for the economic downturn caused by COVID-19, reflecting these as losses. However, thanks to successive government stimulus measures this year, the U.S. economy is likely to rebound strongly, leading to a significant reduction in loan loss provisions. Cassidy said, "Last year, banks set aside tens of billions of dollars as loan loss provisions to prepare for credit losses, but they did not have to use them," adding, "A substantial increase in net profits is expected as a result."

Trading revenue is also expected to increase significantly. Due to the high volatility in the New York stock market last year, banks saw a large increase in trading division revenue.

JP Morgan Chase recorded a 20% increase in trading division revenue in the fourth quarter of last year. In particular, equity trading revenue rose by 32%. Citigroup also saw a 14% increase in total trading revenue, including equities, bonds, and derivatives, with equity trading revenue surging 57%.

With U.S. Treasury yields rising sharply this year, bond trading revenue is expected to increase significantly. It is forecasted that bond trading revenue will reach its highest level in at least 10 years.

This content was produced with the assistance of AI translation services.