As part of the quarterly season for US banks, the industry will present its results for the first quarter of 2023. It starts on Friday April 14th when a number of the biggest banks will report. More results will be released in the week beginning April 17th when focus shifts to smaller regional banks.
Below is a table of the data from the major US banks, as well as some of the smaller lenders that have been the focus of interest over the past few weeks:
US bank
Date of quarterly figures
First Republic Bank*
Apr-13
JPMorgan
Apr-14
Citigroup
Apr-14
Wells Fargo*
Apr-14
PNC Financial
Apr-14
Charles Schwab
Apr-17
M&T bank
Apr-17
Goldman Sachs
Apr-18
Bank of America*
Apr-18
Bank of NY Mellon
Apr-18
MorganStanley
Apr-19
U.S. Bancorp
Apr-19
FifthThird
Apr-20
KeyBank
Apr-20
Regions Financial
Apr-21
(*not yet confirmed)
Preview quarterly figures US banks Q1 2023
This is a crucial quarterly season for US banks. They are tasked with restoring confidence shattered by the collapses of Silicon Valley Bank and Signature Bank in March. This brings back painful memories of the 2008 financial crash that quickly spread across the Atlantic and resulted in ailing Credit Suisse being bailed out by UBS.
Jamie Dimon, the head of JPMorgan and the only CEO among major banks to survive the 2008 financial crash, warned just this week that the US banking crisis “is not over yet” and that it “will have an impact for years to come.” JPMorgan, the largest US bank, spearheaded the rescue of First Republic last month when a group of large lenders pumped $30 billion in deposits into the smaller regional lender after it ran into liquidity problems following a rush of withdrawals.
This uncertainty has made it difficult for banks to recover. Smaller lenders, considered more vulnerable, have been hit the hardest: the SDPR S&P Regional Banking ETF is down 32% since early March and is currently at its lowest since November 2020! Larger banks, considered financially more secure, have proven more resilient, but are not immune to the situation. The Dow Jones US Bank Index — made up of over 68% by four of the largest banks — is down 21% since early March.
Fears of contagion are fading for now, but traders and investors still cringe when they hear that another domino has fallen, and the need to mend cracks that have opened up in the banking system has still dramatically changed the outlook for bank stocks , even if we’re lucky and don’t see any more massive collapses.
Risks of a recession have increased, partly because the crisis is expected to lead to tighter credit conditions that will make it more difficult for consumers and businesses to obtain loans and other forms of credit. Banks will be required to act conservatively and ensure a better balance between loans and deposits. Limited availability of finance means that customers will use up more of their deposits, which could make matters worse and force them to cut back on spending and investments.
This could come at a time when the rush of withdrawals from banks into money market funds, where deposits have hit an all-time high due to the superior returns, could force banks to make interest rates on their savings accounts more attractive, and therefore more expensive, to ensure that they attract capital instead of losing it. According to the latest Federal Reserve data, total deposits at US commercial banks have declined for nine straight weeks.
Rate hikes are also likely to peak earlier than previously expected. The Fed is now hoping tighter credit conditions will help bring inflation down and ease pressure on the central bank to raise rates further. However, persistently high inflation and the difficulty of raising interest rates further could keep interest rates high for longer, although markets are currently pricing in several rate cuts before the end of the year!
The industry’s vulnerability now also poses the risk of stricter regulations being put in place to prevent something similar from happening again, which would drive up costs and limit banks’ ability to make money. Right now, small and medium-sized banks are in the crosshairs as they aren’t as heavily regulated or stressed as the larger banks, despite collectively originating the bulk of the credit that drives the US economy.
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Bank stocks: What to watch out for in Q1 2023
Here are some of the areas the markets will be particularly interested in…
deposits and balance sheet strength
Regional banks have faced a rush of withdrawals after the first bank failures since the last financial crash, and markets are anxious to see if deposit outflows will continue or if there are signs of things stabilizing.
So where have all those deposits gone? There have been reports that the largest banks have seen inflows of deposits as customers move their money to more financially secure institutions, but it will be interesting to see how much they attracted given the large sums poured into alternative investments.
Ultimately, this quarterly season will show markets how strong or fragile each bank’s balance sheet is after last month’s turbulent events. Those who have stressed that they can weather any storm have failed to convince the markets. Deposits and the ability to handle large-scale withdrawals will be the focus of attention.
Provision for loan losses
Banks have already built provisions to deal with a spike in loan defaults, and the recent turmoil in the system will only encourage them to build up reserves even faster now that the talk of recession is back and because of of tightening credit conditions and a more conservative stance.
JPMorgan, Bank of America, Wells Fargo, Citigroup, Morgan Stanley and Goldman Sachs are expected to collectively set aside $6.8 billion in the first quarter, up from just $2.8 billion a year ago. Provisions are expected to increase further in 2023, which will weigh on profits.
Commercial real estate risks
Much has been said about the risks that the commercial real estate market poses to the banking sector. The outlook for many parts of the sector remains challenging. Demand for office space is being tested by the shift to hybrid work and telecommuting. Demand for retail space is being met by businesses moving online, and even the warehouse boom is fading. This and the general economic situation are putting real estate valuations to the test.
Against this backdrop, there are fears that landlords and businesses will struggle to refinance their commercial real estate loans for years to come. Higher interest rates will make costs more expensive at a time when rental income will be under pressure and banks will limit their lending. The situation is compounded by the fact that around 68% of all commercial real estate loans are held by smaller regional banks rather than larger banks. Ultimately, it will probably become more difficult and more expensive. This increases the risk of payment defaults and a crisis in this sector, which could affect the entire economy.
Consensus on US Bank Results
Most major US banks will be compared to cheaper benchmarks from 2023 onwards, although this will not help all of them.
Bloomberg consensus figures show that the industry will continue to show divergent trends. JPMorgan and Wells Fargo will see earnings jump, while Morgan Stanley and Goldman Sachs earnings are likely to come under pressure due to the difficult conditions in their investment management businesses.
All of these big banks are expected to post full-year 2023 earnings growth after earnings declines in 2022, with the exception of Citigroup, which is grappling with the cost of its restructuring efforts, which it hopes will bring improvements over the longer term. Currently, the risks to the outlook and estimates for the remainder of the year are on the downside.
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