As pandemic recession takes hold, large US banks to report profit plunge

Financial analysts expect large US banks to report a 30% to 60% plunge in profits on the year-ago period due to the pandemic-induced recession and near record low interest rates.

Citigroup and Wells Fargo, the third- and fourth-biggest US banks by assets respectively, will report net income down by about 60%, according to I/B/E/S analyst survey data from Refinitiv. JPMorgan Chase and Bank of America, which rank first and second in assets respectively, are expected to show profits down about 30%.

That slump in third quarter net income comes even though lenders are not going to make outsized provisions for expected loan losses as they did in the first and second quarters, according to Reuters. And, while capital markets and investment banking revenue are expected to be up from 5% to 20%, that won’t be enough to make up for the decline in interest income from loans and securities.

Investment banks Goldman Sachs and Morgan Stanley, which are benefitting from being more concentrated in the busy capital markets, are expected to report more modest profit declines of about 5% to 10%.

Pandemic-driven lockdowns have put tens of millions of Americans out of work and plunged the US into a recession. US output is forecast to fall 3.7% in 2020, the Federal Reserve said in September 2020. That is not as bad as feared earlier in June 2020, allowing banks to hold off on adding to their loss reserves.