Trends in bank earnings: Banks’ Q2 2022 earnings offer insight into how they're preparing for the economic uncertainty they’ll face during 2H. Here are the common themes we saw in US, UK, and Canadian reports.
Trend 1: Profits decreased. (Mostly.)
Most major banks in the US reported steep declines in profits YoY from Q2 2021 to Q2 2022.
The story was similar in the UK, where Lloyds Bank posted a 28% decrease in profits and Barclays reported a 48% decline. Notably, HSBC saw its profit increase 49% YoY from $3.9 billion to $5.8 billion.
While the banks reported strong lending numbers and income streams from interest income, the declines were powered by losses in noninterest income. Wells Fargo reported that higher interest rates and weaker financial markets caused noninterest income from avenues like venture capital, mortgage banking, and investment banking to decline.
Canadian banks bucked the trend, seeing modest YoY increases in profits due to less uncertainty regarding Covid-19.
Trend 2: Increased lending and robust consumer spending boosted earnings.
Despite inflationary pressure and rising interest rates in the US, consumers continued to spend during Q2. In their earnings commentary, multiple banks pointed to strong credit card spending and healthy deposits.
The UK reported similar strengths, but banks there are wary of the rising cost of living many citizens face.
Canada also reported vibrant consumer data for the quarter.
Trend 3: Despite all their talk about uncertainty, banks’ outlooks remain mostly upbeat.
Banks in the US, the UK, and Canada have all acknowledged the chill that has swept over the global economy, as well as rising geopolitical tension.
But for the most part, banks remain positive about their ability to weather the storm.
The big takeaway: At face value, the Q2 2022 results look foreboding—profits plummeted and uncertainty prevailed—but banks might be in a better position than the numbers indicate.