RateCaptain
  • Home
    • About Us
    • Contact Us
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
No Result
View All Result
Subscribe
  • Home
    • About Us
    • Contact Us
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
No Result
View All Result
RateCaptain
No Result
View All Result
Home Banking

American Banks Brace for Earnings Season Amidst Rising Interest Rates

Jide Omodele by Jide Omodele
October 13, 2023
in Banking, Markets
Reading Time: 3 mins read
A A
0
American Banks Brace for Earnings Season Amidst Rising Interest Rates
Share on FacebookShare on TwitterShare on WhatsappShare on Telegram

As American banks close out yet another quarter marked by surging interest rates, concerns about diminishing margins and increasing loan losses are resurfacing in the industry. However, some analysts are finding a silver lining amidst the challenges.

Higher interest rates are expected to lead to an uptick in losses on banks’ bond portfolios and contribute to funding pressures, as institutions must pay higher rates for deposits. KBW analysts Christopher McGratty and David Konrad estimate that banks’ per-share earnings fell by 18% in the third quarter due to compressed lending margins and decreased loan demand resulting from higher borrowing costs.

AlsoRead

Nigerian Banks Face N3.77 Trillion in Loan Losses Since 2023

CBN Crackdown: Nigerian Banks Face Dividend Freeze Until 2028

Nigerian Banks Brace for Profit Squeeze as CBN Phases Out Forbearance Measures

“The fundamental outlook is hard near term; revenues are declining, margins are declining, growth is slowing,” McGratty stated in a phone interview.

Earnings season has just kicked off, with reports from major banks like JPMorgan Chase, Citigroup, and Wells Fargo. Bank stocks have been closely intertwined with the trajectory of borrowing costs throughout the year, with the S&P 500 Banks index falling by 9.3% in September, primarily due to concerns sparked by a surprising surge in longer-term interest rates, particularly the 10-year yield, which rose by 74 basis points during the quarter.

Rising yields lead to a decrease in the value of bonds held by banks, creating unrealized losses that exert pressure on capital levels. This situation took smaller institutions like Silicon Valley Bank and First Republic by surprise earlier this year, resulting in government seizure due to deposit runs.

While larger banks have largely avoided concerns related to underwater bonds, Bank of America stands as an exception. The bank heavily invested in low-yielding securities during the pandemic, accumulating over $100 billion in paper losses on bonds by midyear. This has constrained the bank’s interest revenue and made it the worst-performing stock among the top six U.S. institutions this year.

Expectations regarding the impact of higher rates on banks’ balance sheets vary. Morgan Stanley analysts led by Betsy Graseck believe that the “estimated impact from the bond rout in 3Q is more than double” the losses experienced in the second quarter.

Regional lenders, including Comerica, Fifth Third Bank, and KeyBank, are expected to be the hardest hit by bond losses, according to the Morgan Stanley analysts. Nevertheless, other analysts, such as those at KBW and UBS, suggest that other factors might mitigate the capital hit from higher rates for most of the industry.

“A lot will depend on the duration of their books,” noted Konrad in an interview, referring to whether banks own shorter or longer-term bonds. “I think the bond marks will look similar to last quarter, which is still a capital headwind, but there’ll be a smaller group of banks that are hit more because of what they own.”

There is also concern that higher interest rates will lead to ballooning losses in commercial real estate and industrial loans. RBC analyst Gerard Cassidy expects loan loss provisions to increase significantly compared to the third quarter of 2022, as banks are anticipated to build up loan loss reserves.

Despite these challenges, bank stocks may be primed for a short squeeze during earnings season, as hedge funds have wagered on a return of the chaos experienced in March, when regional banks saw a mass withdrawal of deposits. UBS analyst Erika Najarian believes that a combination of elevated short interest and a short thesis predicting another liquidity crisis could result in a potentially volatile short squeeze in the sector.

According to Goldman Sachs analysts led by Richard Ramsden, banks will likely demonstrate stability in deposit levels for the quarter. This, along with guidance on net interest income for the fourth quarter and beyond, may support some banks. These analysts express bullish sentiment toward JPMorgan and Wells Fargo.

Perhaps because bank stocks have faced significant declines and expectations are low, the industry may be due for a relief rally, according to McGratty.

“People are looking ahead to, where is the trough in revenue?” McGratty said. “If you think about the last nine months, the first quarter was really hard. The second quarter was challenging, but not as bad, and the third will be still tough, but again, not getting worse.”

Tags: bankingbond portfoliosborrowing costscapital levelsdeposit levelsEarnings SeasonEarnings Season Keywords: American banksEconomic Analysis.Financefinancial marketinterest ratesloan lossesS&P 500 Banks indexshort squeeze
Previous Post

FG’s Inaction on Export Expansion Grant Backlogs Impedes Revenue Diversification

Next Post

Nigeria’s Fiscal deficits Deepens to N7.5 trillion

Related News

Liquidity Crunch: Banking Sector’s Borrowing from CBN Surges to N12 Trillion.

Nigerian Banks Face N3.77 Trillion in Loan Losses Since 2023

by Jide Omodele
June 17, 2025
0

Ten commercial banks listed on the Nigerian Exchange (NGX) have collectively incurred N3.77 trillion in loan impairment charges from 2023...

CBN’s Recapitalization Budget of $1 Trillion Sparks Debate Among Industry Stakeholders

CBN Crackdown: Nigerian Banks Face Dividend Freeze Until 2028

by Stephen Akudike
June 17, 2025
0

A recent Renaissance Capital (Rencap) research note, titled “Nigerian Banks, Cash is King,” has shed light on the significant exposure...

NEC Affirms CBN $3 Billion Loan for Naira Stability

Nigerian Banks Brace for Profit Squeeze as CBN Phases Out Forbearance Measures

by Stephen Akudike
June 16, 2025
0

The Central Bank of Nigeria (CBN) has initiated a gradual rollback of forbearance measures introduced during the COVID-19 pandemic, signaling...

NEC Affirms CBN $3 Billion Loan for Naira Stability

CBN Stands Firm on BDC Recapitalisation Deadline, Rejects Extension Rumors

by Stephen Akudike
June 12, 2025
0

The Central Bank of Nigeria (CBN) has categorically dismissed reports suggesting an extension of the recapitalisation deadline for Bureau De...

Next Post
Nigeria’s Fiscal deficits Deepens to N7.5 trillion

Nigeria's Fiscal deficits Deepens to N7.5 trillion

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

DMO Announces Subscription Offering for Federal Government Savings Bonds.

Nigeria Launches N50 Billion Green Bond to Fund Climate-Friendly Projects

June 17, 2025
EFCC Launches Task Force to Combat Naira Mutilation and Dollarization

EFCC Arraigns Precious Williams for Alleged N13.8 Billion Ponzi Scheme Fraud

June 17, 2025

Popular Story

  • World Bank Extends Nigeria’s Digital Identification Project Deadline Amid Missed Targets

    Nigeria Loses $4M World Bank Loan Due to Audit Failure

    0 shares
    Share 0 Tweet 0
  • BlackRock Joins Blockchain Platform Axoni for Equity Swap Trades

    0 shares
    Share 0 Tweet 0
  • Fair Money Job Opening: Regional Sales Manager

    0 shares
    Share 0 Tweet 0
  • Nigerian Equity Market Rebounds with ₦369 Billion Gain

    0 shares
    Share 0 Tweet 0
  • Nigerian Banks Shine in 2024: Soaring Profits Amid High Rates and Strategic Growth

    0 shares
    Share 0 Tweet 0
RateCaptain

RateCaptain

We bring you the most accurate in new and market data. Check our landing page for details.

  • Home
  • About Us
  • Privacy Policy
  • Terms & Conditions
  • Disclaimer
  • Cookie Policy
  • Contact Us

Copyright © 2022 RateCaptain - All rights reserved by RateCaptain.

No Result
View All Result
  • Home
    • About Us
    • Contact Us
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates

Copyright © 2022 RateCaptain - All rights reserved by RateCaptain.

RateCaptain
Manage Cookie Consent
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
Manage options Manage services Manage {vendor_count} vendors Read more about these purposes
View preferences
{title} {title} {title}
?>