Earnings Watch: JPMorgan, Citi, Morgan Stanley and Wells Fargo kick off bank earnings season in choppy waters

The sector’s weak stock prices come amid a slowdown in investment banking, layoffs in mortgage units, and decreased demand for car and home financings due to higher interest rates in 2022.

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See: JPMorgan and Goldman are still top dogs in investment banking but business shrinks significantly in 2022

Dave Wagner, portfolio manager and analyst at Aptus Capital Advisors, which manages the Optus Small Cap Value ETF OSCV, -2.12% and the Aptus Collared Income Opportunity ETF ACIO, -1.32%, said negative sentiment has swamped the banks, even as they continue to benefit from higher interest rates.

“People don’t’ understand, there is still loan demand out there,” Wagner said. “Banks can still benefit from higher average yields and excess liquidity put back to work.”

But bad news continues to pile up around banks, with fresh reports on how Morgan Stanley MS, -2.93% and Bank of America BAC, -2.26% are among the banking syndicate expected to lose a combined $500 million on providing debt for Elon Musk’s $44 billion acquisition of Twitter Inc. TWTR, -0.43%, as reported by 9fin.

Shares of JPMorgan Chase JPM, -2.00% have fallen 33% in 2022, while the Dow Jones Industrial Average DJIA, -2.11% is off by 19.3%. and the S&P 500 SPX, -2.80% has fallen 23.6%. Citigroup is down 30.2% so far in 2022, while Morgan Stanley MS, -2.93% has retreated by 20% and Wells Fargo WFC, -1.07% is off by 13%.

Following JPMorgan, Citigroup, Morgan Stanley and Wells Fargo on Oct. 14, Bank of America Corp. BAC, -2.26% is expected to report third-quarter earnings of 78 cents a share and revenue of $23.56 billion on Oct. 17. Goldman Sachs Group Inc. GS, -1.18% is on tap to report a third-quarter profit of $7.76 a share and revenue of $11.38 billion on Oct. 18.

As the largest player by market capitalization and a bellwether for the group, analysts expect JP Morgan Chase & Co. JPM, -2.00% to earn $2.92 a share with revenue of $32.1 billion, according to FactSet estimates.

Wall Street will be keen to hear JPMorgan Chase’s take on the economic outlook amid sharp losses in equity and bond markets as investors grapple with moves by central bankers around the world to attempt to tame inflation by hiking interest rates.

JPMorgan Chase CEO Jamie Dimon signaled some strength in the banks in his recent grilling on Capitol Hill with other bank CEOs after he warned earlier this year about an economic storm approaching.

See: Bank CEOs push back on capital requirements in Capitol Hill hearings

Analysts and investors will be watching to see how much money JPMorgan and the other banks sets aside to boost reserves in case of an economic downturn.

Even as forecasts of recession and market volatility unnerved the financial world during the third quarter, bank earnings projections have remains relatively stable.

JPMorgan Chase’s current third-quarter analysts’ estimate of $2.92 a share has fallen 4 cents a share from $2.96 a share in July, but it remains above the estimate of $2.80 a share on March 31, according to FactSet data on historical changes in analyst estimates.

With a business that’s more reliant on investment banking, Goldman Sachs Group’s current earnings target of $7.76 a share is lower than the $10.19 a share expectation on March 31.

Morgan Stanley’s earnings estimate on March 31 was $1.85, compared to $1.52 currently, according to FactSet.

Citigroup is currently expected to earn $1.48 a share, down from $1.69 a share on March 31. Sentiment has improved slightly for Wells Fargo, which is now expected to earn $1.10 a share, up from $1.06 a share on March 31. Analysts currently expect Bank of America to earn 78 cents a share, down from 84 cents a share on March 31.

Investors will likely be on the lookout for potential headwinds in loan growth and credit quality in the banking industry, as well as any signals of stress in the banking system from Credit Suisse.

However, Credit Suisse rallied 8% on Friday after the bank successfully executed a show of strength by buying back up to $3 billion of its own debt.

Federico Baradello, founder and CEO of private securities platform Finalis, said he thinks concerns about Credit Suisse have been overblown given that the Swiss government has set up a backstop for the bank.

“Balance sheets among U.S. banks today are fundamentally more liquid than they were in the 2007-2008 financial crisis,” Baradello said. “The bottom line…is that there is ‘still a lot of value’ in Credit Suisse in terms of the sum of its parts” according to some analysts.

Putting a positive spin on weak stock performances, Deutsche Bank analyst Matt O’Connor said he expects strong third-quarter results driven by net interest income and loan, with solid credit quality remaining.

O’Connor said in a research note this week that Deutche Bank remains most postie of JPMorgan and Wells Fargo, along with regional banks CFG, -1.16% and M&T Bank Corp. MTB, -1.11%.

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