US bank investors to focus on higher rates, deals outlook in Q3 earnings
XLF•Third-quarter earnings for the largest US banks are expected to rise by up to 20% year over year, as investors assess higher rates’ effects on dealmaking, lending growth and funding costs. JPMorgan, Goldman Sachs, Citigroup and Wells Fargo report October 13; Morgan Stanley and Bank of America report October 14.
1. Earnings outlook
Analysts expect the largest US banks’ third-quarter profits to rise from a year earlier, with investment banking and trading revenue significantly higher than in the previous period and no signs of credit portfolio deterioration. Investors will scrutinize results for signs that higher Treasury yields could curb dealmaking and lending growth, raise deposit costs or weaken credit quality.
2. Rates and dealmaking
Higher rates slowed capital markets activity late in the quarter, and surging bond yields contributed to IPO cancellations late in September. JPMorgan expects investment banking fees and trading revenue to rise by a mid-to-high teens percentage, while Bank of America expects investment banking fees to fall at least 10% and sales and trading revenue to be flat. Morgan Stanley said its investment banking pipeline looks robust.
3. Reporting schedule
JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo are scheduled to report October 13, followed by Morgan Stanley and Bank of America on October 14. Third-quarter earnings estimates range from $1.10 per share for Bank of America to $12.44 for Goldman Sachs.
