Reasons to Watch Bank Earnings in 2023

By Kirsteen Mackay

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Fat profit margins may be at risk as challenges facing banks in 2023 could include rate hikes, potential loan defaults, and declining profits from trading stocks. There may be cost-cutting and layoffs ahead.

Worth Watching Bank Earnings in 2023

As Wall Street has bank earnings in focus this week, investors should take the following factors into consideration.

Profit Margins

In 2023, investors in banks have both good and bad news to consider. On the one hand, banks have been charging more for loans but not increasing the rewards they give to deposit holders to the same degree. This has allowed banks to have very high profit margins.

However, as the Federal Reserve slows down its interest rate hikes in 2023, investors may be concerned that banks will face more pressure to increase the rates they offer to deposit holders to keep them from leaving. If banks don't increase their rates, they may lose deposits, which is a primary form of funding for banking institutions.

Loan Default

Another concern for banks and investors is whether people will be able to pay back the loans that the banks have given out. If a recession or economic downturn occurs, it could lead to more people defaulting on their loans.

So far, banks have said that they don't expect to see many defaults until the middle of 2023, as people still have deposits that they saved during the pandemic. However, banks have also set aside billions of dollars in recent quarters to protect against potential defaults. It remains to be seen if this will be enough to cover any defaults that do occur in 2023.

Trading Stocks

Something that has been good for banks in the past, but may not be as good in 2023, is the revenue they get from trading stocks. This is because the stock market has been slowing down recently, which has hurt the profits of banks. This means that banks may not see as much profit from trading stocks in the future.

As a result, some banks may need to cut costs, including layoffs. According to one source, Goldman Sachs (NYSE: GS) may lay off as many as 3200 people in the near future.

Bank earnings due this week include JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC), Citigroup, Inc. (NYSE: C), BlackRock, Inc. (NYSE: BLK), The Bank of New York Mellon Corp. (NYSE: BK), First Republic Bank (NYSE: FRC), and Saratoga Investment Corp. (NYSE: SAR).

Read our upcoming quarterly earnings review.

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Topics:
Quarterly Earnings
Industries:
Financials
Companies:
JPMorgan Chase
Wells Fargo
BlackRock
Bank of America
Citigroup
Bank of New York Mellon

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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