WGA Releases US Banking Industry Review & Outlook for Q3 2023

Higher Credit Expenses, Lower Bank Earnings Likely as Year Ends

Components of Bank Revenue Q2 2023

Whalen Global Advisors has released The IRA Bank Book for Q3 2023, including a review of the latest financial results for the banking industry and our outlook for the rest of 2023.

WGA Chairman Christopher Whalen commented on the industry outlook: "The US banking industry has seen now two consecutive down quarters for net income as the disruption caused by the Fed's massive open market operations in '20-'21 slowly works through the system. We predicted the decline in income in 1H 2023. Fortunately, the change in funding costs in Q2 2023 was below our worst expectations."

Highlights from the latest edition of The IRA Bank Book include:

  • Net interest income and broad banking industry earnings will likely decline again in 2H 2023 due to unprecedented deposit interest rate repricing and a slowdown in the increase in bank asset returns.
  • With the 10-year Treasury note yielding 4.25%, the mark-to-market on the assets of the U.S. banking system results in a negative capital position of over $1 trillion as of Q2 2023. Rising interest rates will worsen the capital deficit in Q3 2023.
  • Consumer credit losses are likely to remain below expectations through 2023, but losses on commercial and multifamily real estate, and related commercial exposures are likely to be far higher than during the previous economic downturn a decade ago.

"Going into the end of 2023, we're just entering a period of normalization for credit even as earnings weaken," notes Whalen. "The first phase of the credit cycle will be dominated by losses on commercial real estate and corporate exposures. But by the middle of 2024, we could see above average credit losses on consumer exposures like autos and credit cards. Last will come the residential mortgage market, if and when home prices begin to fall."

Copies of the IRA Bank Book for Q3 2023 are available to subscribers to the Premium Service of The Institutional Risk Analyst. Standalone copies of the report are also available for purchase in our online store. Media wishing to receive a courtesy copy of the report please email: info@rcwhalen.com.

About Whalen Global Advisors LLC

Whalen Global Advisors LLC (WGA) is a New York-based consulting, risk analytics and publishing company that focuses on financial institutions and global markets. WGA publishes The Institutional Risk Analyst (ISSN 2692-1812), including commentary on the capital markets, industry reports and company profiles. For additional information, please contact us at: info@rcwhalen.com

Source: Whalen Global Advisors LLC