The health of America’s major banks can be a good indication of the health of the economy. When banks report good earnings , it stands to reason that the economy is healthy as well. Experts indicate that the next bank earnings report could be a bit shaky.
On one hand, banks should be doing well. Consumers were increasing their credit card spending. Businesses were borrowing more. People were refinancing to take advantage of new lower rates on mortgages. But, what did not bode well for the banks were the changes in the stock market .
When the European debt crisis became national news, it made the American stock market a bit nervous. Strong bank earnings reports one day were followed by very poor reports the next, and that spelled trouble for banks.
Bank Earnings Reports and Stress Tests Coming Soon
Friday will mark the first of the reports from major banks. JPMorgan Chase is expected to be the first one to report. Citi, like JPMorgan, has a large investment division. Of the three major banking industry players, Wells Fargo is expected to do the best, because they do not rely strongly on investments. The other two are expected to report lower than average earnings. Goldman Sachs, Bank of America and Morgan Stanley are all expected to do the same.
This is also the time when banks begin submitting their stress tests. This is a test that the Federal Reserve uses to decide if they will have enough cash or similar securities to offset the losses from the riskier loans they take. Unhealthy banks will be told to raise more money. While these are not due until March, they start coming in around January.
Across the board, banks are going to be reporting lower earnings, but this does not mean doom and gloom for the economy. American banks do have the tendency to bounce back from difficulties such as those faced in 2011. Of course, there will be some negatives from these lower earnings. Bonuses for big names in the industry should be smaller, for instance, and the impact of debit card transactions caps will continue to be felt. Banks will need to find a way to overcome these problems.
The bank earnings reports are only the tip of the iceberg, and things will be changing in the near future. But for now, consumers and investors alike must wait and see what the reports will be, and make decisions accordingly.
