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July 3, 2023 | Premium Service | The 2023 Federal Reserve stress test results released this past week demonstrate that large banks in the U.S. are highly resilient to a severe stress scenario imagined by economists. This says nothing about the soundness or profitability of these banks, however, especially given recent market volatility. In such an environment, no surprise, JPMorganChase (JPM) is outperforming its asset peers while smaller banks stumble.
Higher levels of capital would not have changed the outcome for Silicon Valley Bank or the other casualties of rising interest rates. With that caveat in mind, below follows our setup for Q2 2023 earnings for financials. The first comment to make is that banks generally are getting smaller and are looking to shed problematic credit exposures sooner rather than later. These disposals, coupled with a general decline in lending volumes across the board, is likely to put downward pressure on assets and in some cases bank earnings in Q2 2023.