Bye-Bye, Bonus: Brexit Seen Biting Profit for Years at U.S. Banks

by Edward O'Brien 0

When U.S. banks post second-quarter results in days, it’ll boil down to this: Bonus cuts are coming for just about everyone this year, says Wall Street recruiter Richard Lipstein. “If you are break-even, it’s an achievement.”

That’s the picture taking shape as analysts trim estimates for the quarter and overhaul long-term projections for banks’ main businesses after the U.K.’s vote to leave the European Union. Starting this week, JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. probably will say they saw a quick bump in trading after the June 23 referendum, but that deals are stalling and years of pain lie ahead.

Combined net income at the six biggest U.S. banks is estimated to fall 18 percent in the second quarter from a year earlier, according to analysts surveyed by Bloomberg. Fred Cannon, global research director at Keefe, Bruyette & Woods, said many analysts are just starting to rework projections for future periods to account for Brexit’s fallout, such as the prolonging of low interest rates.

“We went from lower for longer into what seems like lower forever,” he said.

That will erode interest from lending. Market turmoil and economic drags linked to Brexit will hurt investment banking revenue as companies reconsider acquisitions and selling new securities. And that’s after trading units suffered their worst first quarter since 2009.

Financial institutions’ assessments of the after-effects of the U.K.’s Brexit vote are underway, and the initial take for many is to take it slow and easy. Even though the press is painting a fairly pessimistic outlook for the industry over the short-to-intermediate term, there are many variables to consider. No matter the eventual outcome, banks and credit unions need to be efficient, and focus on meeting customer and member needs, no matter the economic climate.

Overview by Ed O’Brien, Director, Banking Channels Advisory Service at Mercator Advisory Group

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