Aurelia Butler

NEW YORK (Reuters) -U.S. banking giants are expected to report lower profits for the fourth quarter after they set money aside to cover souring loans while also paying more to depositors.The largest banks’ net interest income (NII) – or the difference between what they earn on loans and pay out on deposits – probably fell on average 10% in the fourth quarter, Goldman Sachs analysts said. An estimated 15% decline in trading revenue will also weigh on earnings, they said.JPMorgan Chase (NYSE:JPM), Bank of America, Citigroup and Wells Fargo report fourth-quarter and full year results on Friday.Banks’ profits will likely be squeezed as they set aside more reserves in the fourth quarter to prepare for customers to default on the loans. Profits could also be curbed by banks paying more to keep depositors’ money in their accounts.Bank of America’s earnings per share (EPS) are expected to drop 23% in the fourth quarter versus a year earlier, while EPS at Citigroup and Morgan Stanley will fall 25% and 17%, respectively, according to analyst estimates compiled by LSEG. EPS is predicted to slide 3% for JPMorgan and 2% for Goldman Sachs.By contrast, earnings at Wells Fargo will benefit from a reduction in expenses, including some related to regulatory orders.Separately, Citigroup investors will look for signs that its sweeping overhaul will raise returns. And Morgan Stanley’s new CEO Ted Pick will provide a strategy update, his first since taking the helm at the start of the year.The largest banks are also expected to book charges to replenish a Federal Deposit Insurance Corp fund after it was drained by the collapses of Silicon Valley Bank and Signature Bank (OTC:SBNY).”There is a lot of macroeconomic uncertainty now and it’s hard to predict the trajectory for net interest income,” said Bank of America analyst Ebrahim Poonawala. He cited the debate about the potential pace of Federal Reserve interest rate cuts this year as one of the key questions hanging over markets. The health of the U.S. consumer is also in focus as lower-income customers fall behind on payments in greater numbers. Although delinquencies are increasing, the strong job market has kept a lid on loan defaults, Poonawala added. Last year was a strong year for bank profits despite the expected slump in fourth quarter net income. Earnings at the largest banks probably rose 5%, compared with a 5% decline for regional banks, Poonawala estimated.The KBW index of banks stocks fell 5.4% last year and accumulates a 0.7% drop in the first days of 2024.”I think 2024 will be a transition year, and will set the stage for the resumption of higher loan growth in 2025,” said Jason Goldberg, an analyst at Barclays. Looking ahead, the slide in NII in the fourth quarter could extend into the first half of this year as banks tighten their lending standards while lower income consumers’ finances become increasingly stretched, Goldman banking analyst Richard Ramsden said. “We could have the opposite effect on the second half as interest rates go down,” he added. Banks are expected to conserve capital this year and stay cautious on buying back their own shares as they brace for potentially stricter rules known as the Basel endgame that are open for public comment, analysts said. The upcoming U.S. presidential election could also change the direction of regulation.Banks had been accumulating paper losses in their portfolios because they held securities that lost value when interest rates rose. As the Fed moves closer to reducing rates, the securities portfolios will regain value, helping to bolster banks’ capital, Goldman’s Ramsden said. EARNINGS PER SHARE IN 4Q BANK EPS 4Q 2023* EPS 4Q 2022 JPMorgan 3.46 3.57 Bank of America 0.65 0.85 Citigroup 0.87 1.16 Wells Fargo 1.21 0.67 Goldman Sachs 3.25 3.32 Morgan Stanley 1.04 1.26 * LSEG mean estimates More

PARIS (Reuters) – The European Central Bank will cut interest rates this year once it sees evidence the inflation outlook has settled in line with its 2% target, ECB policymaker Francois Villeroy de Galhau said on Tuesday.Investors are betting that the ECB will carry out multiple rate cuts this year with the first move coming in March or April though some policymakers have indicated it could take longer to be certain inflation is under control.Villeroy, who is also head of the French central bank, declined to give a timeframe in a News Year’s address to the French financial sector, saying that the ECB’s decisions would be guided by data and would not be rushed.”We will cut rates this year when the inflation outlook is solidly anchored at 2% (with) effective and durable data,” he said.Euro zone inflation has been steadily declining, although it rose in December to 2.9% from 2.4% in November, mainly for technical factors like the end of government subsidies and low energy prices falling out of base figures used to calculate inflation rates. (This story has been corrected to say outlook, not expectations, in the headline and in paragraphs 1 and 4) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The global economy is on track for its worst half-decade of growth in 30 years, the World Bank has warned in its latest projections for 2024, as higher borrowing costs and geopolitical tensions weigh on output. In forecasts published on Tuesday, the multilateral organisation said gross domestic product in the world economy was set to expand just 2.4 per cent in 2024 — down from 2.6 per cent last year. If the predictions are accurate, it would mark the third year in a row where growth would prove weaker than the previous 12 months. “Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank’s chief economist and senior vice-president. The lender said global trade growth in 2024 was expected to be only half the average in the decade before the pandemic. The slowdown in world trade and rise in borrowing costs meant average annual growth for developing countries since 2020 was just 3.9 per cent a year — a full percentage point lower than during the previous decade, it added.The first years of the decade have been marked by the start of the coronavirus pandemic, the ratcheting-up of geopolitical tensions following Russia’s full-scale invasion of Ukraine, and the biggest surge in global inflation in a generation. The Israel-Hamas war has raised concerns over a broader conflict in the Middle East. The warning comes at a time when other multinational organisations are voicing concerns over medium-term prospects for a world economy weighed down by tighter credit conditions and heightened conflict-related risks. The IMF’s projections for the next five years are at their lowest level since the rise of globalisation in the 1990s. Fund officials have repeatedly warned governments against loosening trade ties, which the fund claims will weaken growth and feed into inflation. Advanced economies were expected to see growth of just 1.2 per cent, according to the World Bank, down from 1.5 per cent in 2023. “The main concern in advanced economies is shifting back from inflation to output,” Gill said at a press briefing to mark the report’s release, adding that this was the main takeaway from the US Federal Reserve’s plans to cut rates three times this year from their current 22-year high of 5.25-5.5 per cent. Meanwhile, the slowdown in growth in China was creating a significant “headwind” for other developing economies, particularly its trading partners in east Asia. Eastern Europe would see slower growth owing to its links with Russia, the bank said. Low-income countries would perform better this year, with the world’s poorest economies recording average growth of 5.5 per cent, up from 3.5 per cent in 2023.However, Gill noted that many of these countries and other developing economies remained hamstrung by “more than half a trillion dollars of debt overhang” and shrinking fiscal space.The multilateral lender urged countries to invest more, saying this could be “transformative” in raising living standards. “When it comes to . . . increasing access to the internet, or coping with problems of inequality, you see significant progress when countries have sustained investment growth,” Gill said. More