US bank KPI to change in second half

Wall Street banks may report improved efficiency ratios by the second half of the year, a key metric that has been previously on a downward trend, analysts said. The reason was the global economic crisis, which affected the income of traditional centers, while costs rose amid struggling talent.

Tracking the efficiency ratio allows analysts to estimate a company's external interest payments for subsequent earnings. A higher ratio means the bank is using capital less efficiently.

“According to our forecasts, the banking industry is about to witness positive changes in the efficiency ratio. For instance, the 58% ratio for 2021 is expected to reach the 57% mark by the second half of 2022," said Christopher McGratti, head of U.S. banking research at KBW, a Stifel company.

This forecast indicates a prospective increase in overall earnings growth.

Despite the sharp decline in capital markets’ activity, the increase in net interest income is only gaining momentum. Notably, as McGratti mentioned, overall revenue growth should outpace the expense one.

"The banking sector often sees the worst performance in the second quarter reporting season, as there has been a slight increase in yields, while the decline in earnings has been significant," said Jason Benowitz, senior portfolio manager at Roosevelt Investments. "We expect small positive rate changes from third-quarter lows."