• News
    • Stocks
    • Banks and Finance
    • Companies
    • Crypto
    • Forex
  • Videos
  • Articles
    • Forex CRM
    • Crypto Payments
    • Trading
    • Crypto Exchange Business
    • Forex Business
    • Fintech
    • Liquidity
    • FinTech Awards
  • Liquidity Providers List
  • Crypto Payment Providers

Dark Theme

Banks Are Strong Financially. Why Earnings Don’t Reflect It

Jul 18, 2022

Banks Are Strong Financially. Why Earnings Don’t Reflect It

Second-quarter earnings were even more of a puzzle in a perplexing year for banks, and it could be related to earnings projections.

Simply put, the banks' earnings were less than they were last year and, in many cases, significantly weaker than analyst projections, despite their sound financial standing.

When one bank misses, it raises concerns about the performance of the bank. When numerous banks underperform, it's time to doubt the forecasts. Realizing that an earnings fall doesn't have to be disastrous is crucial for investors.

Profits this year were already anticipated to be lower as the top banks in the country deal with a sharp decline in capital market activity and early indications of a failing economy.

But the fact that last year's earnings were inflated as banks released billions of dollars they had set aside for failed loans—not to mention capital markets activity was ridiculously high—may not have been completely taken into account in this quarter's earnings forecasts.

When expected loan losses didn't occur, those reserves were returned to earnings. Banks are currently increasing their reserves once more as they get ready for a downturn in the economy, although not to the same extent as in 2020.

Just glance at a few of the biggest banks.

JPMorgan Chase (JPM) increased its reserves by $8.9 billion in the second quarter of 2020, $3 billion in the second quarter of 2021, and $400 million in the most recent quarter.

Similar events occurred over the course of the previous two years at Wells Fargo (WFC), which increased reserves by $8.4 billion in the second quarter of 2020, released $1.6 billion the following year, and then increased reserves by $580 million in the most recent quarter.

The Current Expected Credit Losses (CECL) accounting standard, which took effect at the beginning of 2020, is to blame for these swings in reserve builds and releases. It was envisioned that by requiring banks to plan for difficult times even while the economy was doing well, they would be better prepared for when things go south. The reserve increases have added significant volatility to bank profitability since they are for losses that may or may not materialize.

Unfortunately, the economy suffered an extraordinary pandemic-induced shock during the methodology's first year of use. Two years ago, Barron's reported that banks would actually be in a position to outperform despite significant reserve increases.

Wall Street could be unclear on how to forecast the ebb and flow of reserve buildings and releases in the current, more normalized economic cycle. A bank may increase reserves even if its underwriting is strong in order to be extra cautious.

Given this peculiar accounting, it is understandable why numerous banks, including JPMorgan Chase, Morgan Stanley (MS), and Wells Fargo this past week, missed projections and why bank executives become irritable when discussing reserves.

At a conference with analysts, Jamie Dimon, CEO of JPMorgan, stated that the company had "great underlying earnings power" and steady revenues in [the commercial and consumer bank], asset management, custody, and payment services. "Then there are certain streams that are quite variable. Now we have the CECL, which clearly has a wide range of movement. However, once more, that is an accounting entry." he added.

Financial stocks were one of the best-performing sectors in the S&P 500 (SPX) on Friday, suggesting that markets understood that banks remained robust despite earnings setbacks.

This revised norm, however, presents a steep and costly learning curve for banks and their investors.

Subscribe Our Newsletter

Earnings from Nvidia Spark a Massive AI Stock Rally. The Excitement is Growing.

Milena

Earnings from Nvidia Spark a Massive AI Stock Rally. The Excitement is Growing.

Shares of other AI - based businesses, such as C3.ai, Microsoft, and Alphabet, rose ahead of the open as a result of the chipmaker's outsized projections.

Stocks
Stock Market News Live Updates: Stocks Extend Losses As Russia-Ukraine Tensions Build
Stock Market News Live Updates: Stocks Extend Losses As Russia-Ukraine Tensions Build

Equities extended losses on Friday, closing the week in red for the second week in a row, as tensions in Europe escalated, contributing to a further risk-off tone in markets.

Stocks
Alexander

Forex Broker Marketing Strategies That Work in 2022
Nowadays, we can observe an increasing number of Forex brokerage firms striving to become the best in providing their unique services to traders. As a result, the rivalry to engage traders increases as more brokers become involved in Forex trading.

discover
What is the Ethereum Merge, And How Will it Change Ethereum?

Oliver

What is the Ethereum Merge, And How Will it Change Ethereum?

The "Merge" of Ethereum, which supporters claim will improve the asset's value in the long term and substantially change the future of cryptocurrency, was a largely anticipated and historic moment in the crypto world.

Fintech

Contact Us

Contact the Liquidity Provider
for any questions and advertising inquiries b2broker

    Please fill out this contact form to get in touch with us

    / 3000

    By clicking “Get in touch” button, you agree to the privacy policy

    Tamta

    What Is Crypto Arbitrage Trading?

    https://liquidity-provider.com/app/uploads/2023/06/cover-1-800x540.jpg

    Tamta

    Guide to Craiyon: How To Use a New DALL-E Mini

    https://liquidity-provider.com/app/uploads/2023/06/cover-5-800x540.jpg

    Tamta

    Credit Cards vs. Debit Cards

    https://liquidity-provider.com/app/uploads/2023/06/cover-800x540.jpg

    Tamta

    Investing In Private Equity: What Should You Know?

    https://liquidity-provider.com/app/uploads/2023/05/cover-7-800x540.jpg

    Tamta

    What is Data Analytics? Techniques, Tools, Methodology, and More

    https://liquidity-provider.com/app/uploads/2023/05/cover-6-800x540.jpg

    Tamta

    Bitcoin Halving is Coming: What Does it Mean for the Crypto Market?

    https://liquidity-provider.com/app/uploads/2023/05/cover-4-800x540.jpg

    Tamta

    Crypto Token Supply From A to Z

    https://liquidity-provider.com/app/uploads/2023/05/cover-3-800x540.jpg

    Tamta

    What Is ChatGPT, And How Can You Use It?

    https://liquidity-provider.com/app/uploads/2023/05/cover-2-800x540.jpg

    Anton

    Trading on Autopilot: The Rise of Crypto Trading Bots

    https://liquidity-provider.com/app/uploads/2023/05/cover-1-800x540.jpg

    Tamta

    Crypto Investing vs. Crypto Trading: What’s The Difference?

    https://liquidity-provider.com/app/uploads/2023/04/cover-5-800x540.jpg

    Tamta

    Understanding Indexed Universal Life Insurance (IUL)

    https://liquidity-provider.com/app/uploads/2023/04/cover-4-800x540.jpg

    Tamta

    Best Investment Strategies For Beginners

    https://liquidity-provider.com/app/uploads/2023/04/image1-800x540.jpg

    Tamta

    Understanding Perpetual Futures: How Do They Work?

    https://liquidity-provider.com/app/uploads/2023/04/cover-3-800x540.jpg

    Tamta

    What Is A Bitcoin Stock-To-Flow Model? Beginner’s Guide

    https://liquidity-provider.com/app/uploads/2023/04/cover-2-800x540.jpg

    Tamta

    Best Decentralized Crypto Exchanges In 2023

    https://liquidity-provider.com/app/uploads/2023/04/cover-1-800x540.jpg

    Tatma

    Best High-Yield Savings Accounts For March 2023

    https://liquidity-provider.com/app/uploads/2023/04/cover-800x540.jpg

    Tamta

    Crypto Trading For Beginners

    https://liquidity-provider.com/app/uploads/2023/03/cover-8-800x540.jpg

    Tamta

    How To Make Money With Cryptocurrency

    https://liquidity-provider.com/app/uploads/2023/03/cover-7-800x540.jpg

    Tamta

    What Is A Candlestick Chart?

    https://liquidity-provider.com/app/uploads/2023/03/cover-6-800x540.jpg

    Constantine

    White Label Forex Software — Ultimate Guide on How to Choose The Best Industry Solution

    https://liquidity-provider.com/app/uploads/2023/03/cover-3-300x203.jpg

    Tamta

    Forex Trading: A Beginner’s Guide

    https://liquidity-provider.com/app/uploads/2023/03/cover-2-300x203.jpg

    Tamta

    How to Create a Cryptocurrency

    https://liquidity-provider.com/app/uploads/2023/03/cover-1-1-800x540.jpg

    Tamta

    Top Ten Richest People In The World, 2023

    https://liquidity-provider.com/app/uploads/2023/03/cover-4-1-300x203.jpg

    Constantine

    What’s at Stake? Here’s How to Avoid Scam Tokens

    https://liquidity-provider.com/app/uploads/2023/03/cover-5-300x203.jpg
    • News
      • Stocks
      • Banks and Finance
      • Companies
      • Crypto
      • Forex
    • Articles
      • Forex CRM
      • Crypto Payments
      • Trading
      • Crypto Exchange Business
      • Forex Business
      • Fintech
      • Liquidity
      • FinTech Awards
    • More
      • Videos
      • Liquidity Providers List
      • Crypto Payment Providers
    [email protected]

    © 2023 Liquidity Provider. All Rights Reserved

    Privacy Policy Cookie Policy