Written by Nupur Anand
NEW YORK (Reuters) – JPMorgan Chase and Wells Fargo began reporting sector earnings on Friday, with investors expected to focus on the big banks’ net interest income forecasts after strong jobs data fueled uncertainty about the future path of the federal funds rate. Sale.
Both banks are expected to report lower third-quarter profits after interest income shrinks while loan demand remains weak.
The sector has 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 raises interest rates.
“Weak loan growth, higher deposits, higher loan loss provisions due to higher unemployment – all of this will put pressure on margins and will moderately reduce National Insurance,” said Stephen Biggar, banking analyst at Argus Research.
Any additional interest rate cuts could reduce banks’ income from interest payments, but also stimulate more borrowing and deal-making.
“With our economists anticipating another 150 basis points of interest rate cuts by mid-2025 and the U.S. economy expected to avoid a recession, we expect the focus to quickly shift to the outlook,” said Betsy Grassick, banking analyst at Morgan Stanley. , he wrote in a report published on September 30.
Investment banking divisions are likely to see a pick-up in activity in the third quarter with higher volumes of debt issuances, follow-on equity offerings and initial public offerings. Analysts said mergers and acquisitions remained weak.
Oppenheimer predicted an average 7% increase in investment banking revenues for all banks, which is a good increase but falls short of a rebound to historical levels.
Trading divisions will likely get a boost from the return of market volatility, but their revenues may still decline compared to the second quarter given the typical seasonal slowdown in the third quarter, Moody’s (NYSE:) analysts wrote in a report.
While weakness in office loans has been a concern for the industry for years, banks have set aside significant reserves to cover potential losses, analysts said. C
Meanwhile, consumer loan delinquencies have begun to rise as banks tighten underwriting in the wake of last year’s banking crisis, industry executives have said in recent months.
Here are the key forecasts for the six largest US banks:
JPMorgan Chase
The largest U.S. bank is expected to report a roughly 8% decline in its earnings per share, according to estimates compiled by LSEG, with its National Insurance falling from the second quarter.
HSBC Bank analyst Sol Martinez expected National Insurance shares to decline by 1.2% from the second quarter as deposit margins shrink and loan growth remains weak.
“Although credit quality should remain good, the reserve of loan losses accumulating for credit card growth should also reduce earnings momentum,” he added.
Bank of America
Estimates compiled by LSEG showed that Bank of America’s earnings per share are expected to decline by about 14% when it announces earnings on October 15. Analysts said National Insurance is expected to remain under pressure, while investment banking’s gains are likely to be more modest than its peers, management noted.
Citigroup
Citigroup’s earnings are expected to decline about 20% due to tepid revenue growth, and as more provisions are made to cover loan losses, Martinez said. The bank’s expenses are likely to increase, while its business income is likely to decrease. The bank is scheduled to announce its earnings on October 15. Executives are likely to face questions about compliance issues after it was fined $136 million in July.
Wells Fargo
Wells Fargo’s earnings per share will likely decline about 14%, weighed down by the impact of NII, UBS analysts said in a note. The bank’s leaders are likely to be questioned about its progress toward reforming regulatory sanctions after it received a new reprimand last month.
Goldman Sachs
The Wall Street giant is likely to see a roughly 35% jump in earnings per share as investment banking improves when it reports results on October 15, analysts said. However, CEO David Solomon warned last month that trading revenues could fall by 10%.
Morgan Stanley Analysts at Oppenheimer said Morgan Stanley’s profits are expected to rise 14%, supported by higher activity in the equity and capital markets. “There is optimism that capital markets and investment banking will perform better in the third quarter, which will boost the Wall Street bank’s earnings relative to its peers on the mainstream banking side,” said Chris Marinac, director of research at Janney Financial Advisors. Montgomery Scott. “There was also limited growth in compensation, which could provide some operating leverage and boost earnings for Morgan Stanley and Goldman,” he added. Morgan Stanley is scheduled to announce its earnings on October 16.
Bank EPS Q3 EPS Q3
2024 2023
Estimates
JP Morgan 4.00 4.33
Bank 0.77 0.90
America
Citigroup 1.30 1.63
Wells 1.28 1.48
Fargo
Goldman 7.36 5.47
Sax
Morgan 1.58 1.38
Stanley
Source: Average estimates compiled by LSEG