It appears 2023 will be a reset year for the 'big six' U.S. banks as they right-size for lower market volumes and continue to enjoy strong loan quality
The “big six” U.S. banks have all reported their fourth-quarter results, wrapping up a difficult 2022, when soaring interest rates forced a decline in several areas of business.
Below is a screen of valuations and analysts’ sentiment for the big six banks, which also include JPMorgan Chase & Co. JPM , Bank of America Corp. BAC , Wells Fargo & Co. WFC , Goldman Sachs Group Inc. GS and Morgan Stanley MS . This is followed by a look into the group’s exposure to problem loans. The banks have only outperformed the full index slightly since the end of 2021. But the banks fell harder than the broad market did last year, and they have staged a sharp recovery since mid-December. So far in 2023, Citi’s stock is up 11%, which has only been exceeded among the big six by Morgan Stanley’s 14% return.
Analysts polled by FactSet expect all six banks to raise dividends, at least slightly, this summer. The consensus 2023 dividend estimates are for the full year, which means the annual dividend rates would be a bit higher, since the payout increases have been announced in recent years along with second-quarter earnings.
Keep in mind that the ratings are mainly based on 12-month outlooks. That might be considered a short period for an investor riding out an economic cycle. There have been many warnings of a recession as the Federal Reserve continues to tighten monetary policy to fight inflation. And corporate layoff announcements are flowing almost daily.
Credit quality could be a silver lining In his coverage of the big banks’ earnings results, Gelsi discussed the decline in capital markets and related revenue, as well as the hit to earnings taken by the banks as they set aside more money to cover anticipated loan loss reserves.
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