Big Banks are Expected to Report Lower Earnings Owing to Low Interest Rates and Brexit Effect
This week, the big U.S banks will begin to report their second quarter earnings. JPMorgan Chase will start the chain of bank earnings report. In the reports, the market will search for clues about how the industry has been affected by 'Brexit' and the shifts in the global economy.
The banks earn a large part of their revenue from the interest rates charged on loans as well as those paid on deposits. The banks presumably continue to be under pressure with interest rates remaining persistently low.
Right now there seems to be no chances of hikes in the key interest rates as economic uncertainties have been triggered by the United Kingdom's decision to exit the EU.
That's not all; the industry is still faces the music from bad loans and struggling energy companies with funds set aside for covering the related losses.
Erik Oja, banking analyst at S&P Global Market Intelligence says "Without any help from interest rates, bank revenue growth will have to come from asset growth and other income."
Reportedly, S&P 500 index projects 11.8 percent drop in the second-quarter earnings for the banks.
However, the U.S. home buyers have been attracted by the dropping interest rates and that is one factor which could support the mortgage units of the banks.
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