Excluding Citigroup, Major US Banks Expected to Achieve Record High Net Profit Last Year

JP Morgan Expected Net Profit of $40 Billion and BOA $30 Billion
Reversal of Loan Loss Provisions + 'Record-Breaking M&A' Advisory Fee Impact
Large-Scale Earnings Expected Again This Year Due to Fed Rate Hikes

Photo by AFP Yonhap News

[Asia Economy Reporter Park Byung-hee] Ahead of the earnings announcements for the fourth quarter of last year by major U.S. banks, there are projections that banks achieved record-high net profits last year.

According to analyses by Bloomberg and S&P Capital IQ, major foreign media reported on the 8th (local time) that four out of five major U.S. banks, excluding Citigroup, are expected to have achieved record-high net profits last year.

JP Morgan's net profit last year is estimated to have easily exceeded $40 billion, followed by Bank of America (BOA) with net profits in the low $30 billion range, and Morgan Stanley and Goldman Sachs each achieving net profits exceeding $20 billion. Citigroup's net profit is expected to remain in the mid-$10 billion range.

Starting with Citigroup and JP Morgan Chase's fourth-quarter earnings announcements on the 14th, Goldman Sachs will report on the 18th, and Morgan Stanley and BOA will announce their results on the 19th.

The reason for the expected record-high net profits is primarily that losses due to COVID-19 last year were smaller than anticipated.

Goldman Sachs estimated that the seven major U.S. banks initially set aside $50 billion in loan loss provisions to cover COVID-19 losses, but about $36 billion of that was reversed.

Additionally, with last year's mergers and acquisitions (M&A) reaching an all-time high, banks earned substantial fee income from their investment banking divisions.

According to financial information provider Refinitiv, the global M&A volume last year reached a record $5.8 trillion. The year-over-year growth rate was 64%, the highest since the mid-1990s. Compared to 2019, before the COVID-19 pandemic, last year's M&A increased by 54%.

KBW Bank Index and S&P 500 Index Return Trends

With the Federal Reserve (Fed), the central bank, signaling interest rate hikes this year, banks are expected to generate substantial profits again. When the benchmark interest rate rises, the spread between lending and deposit rates widens, improving bank profitability.

Loan demand, which was sluggish last year due to large-scale government stimulus measures, has recently shown signs of recovery.

Analysts explained that although net profits for banks may decrease this year compared to last year when loan loss provision reversals had a significant effect, the increase in profits from lending itself is positive for bank stock prices. This is because increased lending profits indicate an improvement in the banks' fundamental operating environment.

The KBW Bank Index, which reflects the stock price trends of 24 major U.S. banks, rose 35.0% last year, outperforming the S&P 500 Index's 26.9% return. This year, despite the S&P 500 Index declining by 1.87%, the KBW Bank Index surged by 10.1%.

Jane Goldberg, an analyst at Barclays, said, "Bank stocks are expected to outperform the market returns in 2022 as well."

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