Big banks set to give investors good news

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Federal Reserve Chairman Jerome Powell will answer questions on Capitol Hill on Tuesday, and some will surely be targeted on the Fed’s plans to raise interest rates in the coming months.

Some interested parties are the executives of the big banks, many of whom will release their fourth quarter 2021 results this week.

Analysts expect banks to talk about record profits, but part of that is simple bookkeeping. Many banks have set aside a lot of money to compensate for possible defaults at the height of the pandemic, according to Jason Ware, chief investment officer at Albion Financial Group.

“And when the recovery took hold last year, they put those reserves back into the profit line of the income statement,” he said.

Which, he said, is standard practice – no funny business. But as a result, “there was a significant tailwind last year because of these loan loss provisions returning to the income statement, which resulted in a sharp increase in profits,” Ware said.

Investors expect the good times to continue in 2022. Particularly because yields on loans made by banks could rise due to the Fed’s monetary policy decisions.

But nowadays, the profitability of a financial institution depends less and less on the core business of personal banking and more on other banking activities, according to Sheraz Mian of Zacks Investment Research.

“Capital markets, investment banking, mergers and acquisitions, initial public offerings, our business operations, all of this is practically running at full speed,” he said.

Banks have historically been conservative when it comes to new areas of potential growth, Mian Aid. And as more cryptocurrency managers are hiring to test the waters, Ken Leon, director of equity research at CFRA, said many would wait for clear regulation before taking the plunge.

“So if crypto is a currency, how is it defined as an instrument or a security? No one is going to step on the pedal in these areas until there is some clarity, really, from Washington, ”Leon said.

But he said banks are also aware that customers can go elsewhere if they can’t invest in things like crypto with them.

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