Banks’ Early Caution Could Pay Off in Late 2023
If gloomy forecasts don’t materialize, anticipated losses may convert to profits in the second half, boosting the whole economy.
A gloom and zoom scenario.
Photographer: Gabby Jones/Bloomberg
As corporate America’s fourth-quarter financial results continue to roll in, investors are searching those reports for clues to how a possible recession will 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 anticipated 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 doesn't materialize.