Warsh Effect: High Rates Lift Bank Profits But Increase Credit Risks

Warsh Effect: High Rates Lift Bank Profits But Increase Credit Risks highlights a split picture as U.S. banks look to a strong second-quarter earnings season. The broader finance sector is projected to post 12.5% year-over-year earnings growth on 8.1% higher revenues, according to Zacks. Several analysts expect double-digit EPS gains for America’s globally systemically important banks, supported by a rebound in Wall Street dealmaking, including the nearly $86 billion SpaceX IPO and a boost from a “higher-for-longer” rate environment. However, credit quality concerns remain: serious credit card delinquencies for younger borrowers are at a 15-year high of 13.1%, and auto loan charge-offs are rising. Commercial real estate delinquencies in commercial mortgages and CMBS are climbing, increasing the need for loan-loss provisions.