JPMorgan Chase and Wells Fargo led industry earnings on Friday and investors are expected to focus on the big banks’ forecasts for net interest income after strong jobs data fueled uncertainty about the path of future interest rate cuts by the US Federal Reserve;
Both banks are expected to report lower third-quarter earnings as interest income is likely to shrink while loan demand remained subdued.
The sector reaped a windfall in net interest income (NII), or the difference between what it earns on loans and pays for deposits, in recent years as the Fed raised interest rates.
“Weak loan growth, higher deposits, rising loan loss provisions due to higher unemployment – all of these will put pressure on margins and reduce the NII modestly,” said Stephen Biggar, banking analyst at Argus Research.
Any additional rate cuts could shrink banks’ income from interest payments, but also spur more lending and deals.
“With our economists projecting another 150 basis points (bps) of rate cuts through mid-2025 and expecting the US economy to avoid recession, we expect the focus to shift quickly to the future outlook,” wrote Betsy Graseck, banking analyst at Morgan Stanley, in a report published on September 30.
Investment banking divisions likely saw a pick-up in activity in the third quarter as volume increased in debt issuances, follow-on equity offerings and initial public offerings. Mergers and acquisitions remained sluggish, analysts said.
Oppenheimer forecast investment banking revenue growth of an average of 7% across all banks, good growth but falling short of a recovery to historic levels.
Trading divisions likely got a boost from resurgent market volatility, but their revenue may still be down from the second quarter given the typical seasonal slowdown in the third quarter, Moody’s (NYSE:MCO) analysts wrote. in their report.
While office loan defaults have been a source of concern for the industry for years, banks have built up large reserves to cover potential losses, analysts said. C
Delinquencies in consumer loans, meanwhile, are starting to ease as banks tighten underwriting in the wake of last year’s banking crisis, industry executives have said in recent months.
Here are the key expectations for the six largest US banks:
JPMorgan Chase
The biggest US lender is expected to report a nearly 8% drop in earnings per share, according to estimates compiled by LSEG, as its NII slips from the second quarter.
HSBC analyst Saul Martinez forecast the NII to fall 1.2% from the second quarter as deposit margins shrink and loan growth remains subdued.
“While credit quality should remain healthy, provisioning for credit card growth should also moderate earnings momentum,” he added.
BANK OF AMERICA
BofA’s earnings per share are expected to fall about 14% when it reports earnings on Oct. 15, according to estimates compiled by LSEG. NII is expected to remain under pressure, analysts said, while the investment bank’s earnings will likely be more modest than those of its rivals, management said.
CITIGROUP
Citigroup’s earnings per share are expected to fall nearly 20 percent due to tepid revenue growth and as it sets aside more provisions to cover loan losses, Martinez said. The bank’s expenses are likely to increase, while the income from its transactions is likely to decline. The bank is expected to announce its earnings on October 15. Its executives are likely to face questions about its compliance problems after it was fined $136 million in July.
WELLS FARGO
Wells Fargo’s earnings per share will likely fall by nearly 14%, weighed down by the NII, UBS analysts said in a note. The bank’s leaders are likely to be questioned about its progress in setting regulatory penalties after the new reprimand last month.
GOLDMAN SACHS
The Wall Street giant is likely to see a roughly 35 percent jump in earnings per share as investment banking improves when it reports results on Oct. 15, analysts said. But trading revenue could fall by 10%, chief executive David Solomon warned last month.
MORGAN STANLEY Morgan Stanley’s earnings per share are expected to rise 14%, thanks to rising activity in equity and capital markets, Oppenheimer analysts said. “There is optimism for capital markets and investment banking to do better in the third quarter, which should boost Wall Street bank earnings compared to peers on the high street side,” said Chris Marinac, director of research for financial advisor Janney Montgomery Scott. “There was also limited compensation growth, which could provide some operating leverage and boost earnings for Morgan Stanley and Goldman,” he added. Morgan Stanley is expected to report earnings on October 16.
Bank EPS Q3 EPS Q3
2024 2023
Estimates
JPMorgan 4.00 4.33
Bank of 0.77 0.90
America
Citigroup 1.30 1.63
Wells 1.28 1.48
Fargo
Goldman 7.36 5.47
Sachs
Morgan 1.58 1.38
Stanley
Source: Stanley Stanley LSEG
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Reference;
Reuters (2024) US bank profits to shrink on interest income, focus shifts to Fed cuts By Reuters, Investing.com. Investing.com. Available at: https://www.investing.com/news/economic-indicators/us-bank-profits-to-shrink-on-interest-income-focus-shifts-to-fed-cuts-3653897 (Accessed: 9 October 2024).
