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U.S. bank profits to tumble

Big U.S. bank second quarter profits are expected to fall from the previous year on increased loan loss reserves. This recession is due to the pandemic recovery that is being witnessed now. It has been estimated that JPMorgan Chase & Co will report a 25% drop in profit on Thursday, while Citigroup Inc and Wells Fargo & Co will show 38% and 42% profit declines, respectively on Friday, according to the data provided by Refinitiv I/B/E/S. The bottom lines of the banks as a result would look worse considering the underlying businesses. According to estimates by analysts led by Jason Goldberg at Barclays, pre-provision, pre-tax profits for the big four will be down only 7%.

Risk of recession

Even though the U.S. economy added more than the expected jobs in June, it could still face the risk of recession as according to the data shown on Friday. While the first quarter witnessed a contraction in Gross domestic product, in the last two weeks there has been a little consumer spending and manufacturing readings.

As companies have started to borrow more and consumers tend to use credit cards to travel and eat as usual again, banks are also adding to reserves for additional loans they have been making. The actual loan losses and delinquency rates are still near record lows. However, bank executives have said more loans might go bad in this case in the near future.

View of analysts

Jason Ware, chief investment officer for Albion Financial Group, that owns shares of JPMorgan and Morgan Stanley stated, “Its going to be a shaky quarter for the sector. ” He further added, “Investors will want to hear executives’ insights into the health of the economy and if borrowers are “more shaky now.” Gerard Cassidy, a bank analyst at RBC Capital Markets said, “The banks are going to have to build up their reserves.”

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