By Nupur Anand
NEW YORK (Reuters) -JPMorgan Chase and Wells Fargo will kick off sector earnings on Friday, with investors expected to focus on the big banks’ forecasts for net interest income after strong data on the employment will fuel uncertainty about the path of the future Federal Reserve rate. courteous.
Both banks are expected to report lower third-quarter profits after interest income may decline while loan demand remained subdued.
The sector reaped a windfall in net interest income (NII), or the difference between what they earn on loans and what they pay on deposits, in recent years as the Federal Reserve raised rates.
“Weak loan growth, higher deposits, increased loan loss provisions due to higher unemployment rate… all of this will result in pressure on margins and will moderately reduce NII,” said Stephen Biggar, banking analyst at Argus Research.
Any further rate cuts could reduce banks’ income from interest payments, but would also stimulate more lending and trading.
“With our economists anticipating another 150 basis points (basis points) of rate cuts by mid-2025 and expecting the U.S. economy to avoid a recession, we expect attention to shift quickly to future prospects,” Betsy Graseck, banking analyst from Morgan Stanley. , he wrote in a report published on September 30.
Investment banking divisions likely saw a pick-up in activity in the third quarter as debt issuance volumes, follow-on equity offerings and initial public offerings increased. Mergers and acquisitions remained muted, analysts said.
Oppenheimer forecast an average 7% increase in investment banking revenue for all banks, a good increase but falling short of historic levels.
The trading divisions likely received a boost from the resurgence of market volatility, but their revenue may still decline compared to the second quarter given a typical seasonal slowdown in the third quarter, Moody’s (NYSE:) analysts wrote in a report. .
While weakness in office lending has been a source of concern for the industry for years, banks have set aside large reserves to cover potential losses, analysts said. do
Meanwhile, consumer loan delinquencies are beginning to stabilize as banks tighten underwriting following the onset of last year’s banking crisis, industry executives have said in recent months.
Here are the key expectations for the six largest US banks:
CHASE JPMORGAN
The largest US lender is expected to post a nearly 8% drop in earnings per share, according to estimates compiled by LSEG, as its NII falls from the second quarter.
HSBC analyst Saul Martinez predicted NII would fall 1.2% from the second quarter as deposit margins narrow and loan growth remains subdued.
“While credit quality should remain healthy, the buildup of credit loss reserves for credit card growth should also dampen 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, estimates compiled by LSEG showed. NII is expected to remain under pressure, analysts said, while investment banking earnings will likely be more modest than peers, as management has indicated.
CITIGROUP
Citigroup’s earnings per share are projected to decline nearly 20% due to tepid revenue growth and as it reserves more provisions to cover credit losses, Martinez said. The bank’s expenses will likely increase, while its business income will likely decrease. The bank is due to report its earnings on October 15. Executives will likely face questions about his compliance problems after he was fined $136 million in July.
WELLS FARGO
Wells Fargo’s earnings per share will likely fall nearly 14%, affected by the NII, UBS analysts said in a note. The bank’s leaders will likely be questioned about its progress toward setting regulatory penalties after it received a new reprimand last month.
GOLDMAN SACHS
The Wall Street giant is likely to see a roughly 35% rise in earnings per share as investment banking improves when it reports results on Oct. 15, analysts said. However, 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%, driven by growing activity in the equity and capital markets, Oppenheimer analysts said. “There is optimism that capital markets and investment banking businesses will do better in the third quarter, boosting the Wall Street bank’s earnings compared to peers in the core banking sector,” said Chris Marinac, director of research at financial advisor Janney. Montgomery Scott. “There has also been limited growth in compensation, which could provide some operating leverage and boost earnings for Morgan Stanley and Goldman,” he added. Morgan Stanley is due to report its results on October 16.
Bank EPS Q3 EPS Q3
2024 2023
Estimates
JP Morgan 4.00 4.33
Bank of 0.77 0.90
America
Citi Group 1.30 1.63
Wells 1.28 1.48
fargo
Goldman 7.36 5.47
sachs
Morgana 1.58 1.38
Stanley
Source: Average estimates compiled by LSEG