CONOR SEN: US banks’ caution may reap rewards later in 2023

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If gloomy forecasts do not materialise, prudent reserves may convert to profits in the second half

As corporate America’s fourth-quarter financial results continue to roll in, investors are searching those reports for clues on how a recession could affect profits in 2023. For one industry at least — financial services — they may need to look back further than that.

Regulatory and accounting changes in recent years mean that the rising unemployment rate expected by the Federal Reserve has already been incorporated in the earnings that banks and other financial companies reported for last year, not just in their forecasts for 2023. And while the Fed’s estimates require the financial industry to be cautious for now, they might also end up providing a boost to the economy later this year if that big jump in the unemployment rate does not materialise...

 

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