To The Moon

Key points：

1、Five Major BanksGoing To Report Best Performance Since Financial Crisis

2. Three reasons for the record earnings report Season

3.Concerns VS Optimistics，2022 Bank stocks spring outlook

Fourth quarter earnings season of US stocks is set to begin in this week, and bank stocks will be the first to hit: $(JPMorgan)$,$( Chase)$, $(Citi)$, $(Wells Fargo)$. Then,$(Goldman Sachs)$, $(Morgan Stanley)$, and$( Bank of America )$will report over the next week. 1、Five Major Banks Going To Report Best Performance Since Financial Crisis

According to S&P and Bloomberg estimates,In 2021,the five major banks - $(Goldman Sachs)$, $(JPMorgan Chase)$,$( Morgan Stanley)$, $(Citi)$, and $(Bank of America)$ - are on track to post their best results since 2009, with $(Citi)$ expecting to report their highest-ever full-year profits.Matt O’Connor, the head of large-cap bank research at Deutsche Bank also highlighted “You might have to go all the way out to 2024 before earnings are higher than they were in 2021.”

Barclays also expects bank stocks to continue to outperform the market in 2022.

On Monday's Weekly Sectors Recap: Why Energy, Financials, Consumer, Material are top Gains? We've seen that with the broader market underperformed, but Financial Sectors performed pretty well for some reasons.

2、There are three reasons for the record earnings report

According to analysts, several factors have contributed to the expected earnings surge for Wall Street banks.

Firstly, the pandemic disruption has less impact than expected. At least, the risk of bad loans caused by the pandemic doesn’t influence much on bank earnings so far. Wall Street banks released large amounts of reserves in 2021 to cover potential losses from loans which they feared could turn sour due to the pandemic.

Goldman analysts estimate the seven big banks it covers, which include JPMorgan and Bank of America, have now released $36bn of the $50bn they had initially allocated in anticipation of loan losses.

Secondly,along with the quantitative easing policy adopted by all central banks, global IPO and M&A business have soared. The mixed-operation helps Wall Street banks make good fortune from investment banking business.

Statistics shows that 2021 was the most active year for the U.S. IPO market in nearly 20 years. A total of 416 IPOs raised $155.7 billion through fundraising, up 86% and 81% year-over-year.

According to Dealogic, global M&A volumes breached $5 trillion for the first time, over the 2007 record of $4.55 trillion. The U.S. led the way in M&A, accounting for nearly half of global total. Investment banks are making a profit from the hot IPO market and M&A deals.

Thirdly, lucrative banks are using their profits to pay bonuses and buy back their own stock, demonstrating uncommon financial strength.

For example, it is said that U.S. bank executives plan to raise investment bankers' bonuses by more than 40% in total. Goldman Sachs, even more generous, increases its 2021 year-end bonus by 50%. For the buybacks in the Q3 of 2021, Bank of America, with $9.9 billion, ranked fourth among all U.S. stocks. In addition, American Express and Morgan Stanley also made large buybacks in 2021.

3. Concerns VS Optimistics，2022 Bank stocks spring outlook

In 2021, U.S. bank stocks have risen 35%, outperforming the broader market by 27%.

Recently, despite the underperformed broader U.S. market, the bank stocks began to show an upward trend. Since the beginning of the year, stocks of Bank of America and Citigroup rose 10.54%, 8.93%, respectively, ranking among the top in the large bank stocks. Bank of America shares hit a new record high on the same day.

Can the good performance of bank stocks continue? What factors we need consider？

Early 2022, the Federal Reserve announces that it will accelerate the process of rate hike and balance sheet runoff. The market is now anticipating the first rate hike in March of this year.

Investors are betting that higher interest rates will revive banks' loan earnings. Loan demand, which has been sluggish in 2021 as the government introduced record amounts of stimulus, is also now showing signs of improvement. The government stimulus withdrawal and interest rate hikes will make many capital-hungry institutions begin to increase bank lending. Rising interest rates will generate more revenue for banks.

At the same time, the size of bank deposits grew rapidly and loans were well-funded during the pandemic. JPMorgan Chase, the largest U.S. bank by assets, has seen deposits grow by more than 50% to $2.4 trillion from the end of 2019 to September 2021.However, some analysts express concerns about the sustainability of high growth in Wall Street's investment banking business.

Insitutions‘ concerns：

• JMP securities believe that growth in 2021 was abnormal, especially performance based on the capital markets will never happen again.
• Goldman Sachs banking analyst Ramsden pointed out that 2021 was such an important year for Wall Street banks, perhaps 2021 marked the "peak" revenue of large banks.
• Deutsche Bank analysts believe that 2022 would be a transitional year for bank stocks. Although the potential earnings become better, the actual published income figures will decline.

Optimists’ opionions：

However, optimists who are long on bank stocks analyze that this year's profits will come more from loan income.

As stimulus policies withdraw, more demand for loans and higher interest rates will offset the decrease in capital market gains.

With optimistic expectations, it is another good year for bank stocks. Analysts at Deutsche Bank expect bank stocks to continue to outperform the broader market in 2022.

SHARE YOUR THOUGHTS

• Do you own any Banking company stock?

• Do you think this is Sector will continue to rise？

Capital_Insights Introductions:

This account's purpose is to provide insights and opinions from institutional investors. We are hoping to provide you with a wider vision and understanding of markets & investing. In a long run, we aim to accompany you to make long-term investing decisions and obtain satisfying returns.

​