JP Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Morgan Stanley kick off the third-quarter bank earnings reporting season on Friday, Oct. 14 amid some of the most challenging economic times in at least a decade.
Despite a plethora of woes facing the big banks from inflation and recession jitters to the health of European banking giant Credit Suisse AG CS,
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.
Dave Wagner, portfolio manager and analyst at Aptus Capital Advisors, which manages the Optus Small Cap Value ETF OSCV,
“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,
Shares of JPMorgan Chase JPM,
Following JPMorgan, Citigroup, Morgan Stanley and Wells Fargo on Oct. 14, Bank of America Corp. BAC,
As the largest player by market capitalization and a bellwether for the group, analysts expect JP Morgan Chase & Co. JPM,
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.
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.