Damn It Feels Good to Be a Banker

Bank profits are soaring. So says The New York Times. What’s causing the good news? Well, there are a few reasons. For one, as the pandemic recedes, consumers are spending again. Also a lot of big Wall Street deals are coming back.

The banks were prepared for a wave of defaults. There were certainly defaults, but the massive wave never came. Of course, there was a lot of support from the government to keep things afloat.

This week, we’ll learn a lot more as Wall Street banks report their Q2 earnings. Tomorrow, Goldman Sachs and JP Morgan are due to report. Then on Wednesday, it’s Citigroup’s and Wells Fargo’s turn.

To give you an idea of how the outlook for banking has changed, three months ago, Wall Street was expecting Goldman Sachs to report Q2 earnings of $8.11 per share. Today that forecast is up to $9.95 per share. Still, many of these large banks are trading at less than 10 times this year’s expected earnings.

The uncertainty that’s depressing bank stocks will probably dissipate, said Susan Roth Katzke, an analyst at Credit Suisse. She forecast a rally of about 20 percent in some of their shares in the next six to 12 months. They will be fueled by an accelerating recovery, prospects for rising interest rates and increasing loans, Ms. Katzke wrote in a note to investors.

The big banks are in much better health. Last month, Morgan Stanley and Wells Fargo said they would increase their dividends. The NYT notes that four banks–JPM, BofA, Wells Fargo and Morgan Stanley–have said they’ll buy back $85 billion in shares.

Posted by on July 12th, 2021 at 9:58 am


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